Gold Vs Treasuries: Which Is A Better Hedge Against A Market Crash?

The current economic scenario is difficult and uncertain. Even though the US stocks are hitting new all-time highs, investors face an environment where the bond yield curves are flat or inverted. Amid the US-China trade war, slow economic growth, and the Middle-East turmoil, investors are rushing to gold or Treasuries to protect their wealth from inflation, impending recession, and other risks. In this gold vs Treasuries comparison, let’s check out which of the two is a better hedge against inflation.

Over the last few years, central banks across the globe have embraced an easy monetary policy, which reduces returns from bonds. Both gold and Treasury bills have proven effective for portfolio diversification. They are both safe-haven investments, though Treasuries also pay a yield. Here we take a look at the pros and cons of both asset classes.

Gold: The crisis commodity

Gold is a “crisis commodity.” When investors sense economic or geopolitical tensions, they turn to gold to protect their wealth from inflation and other risks. The yellow metal has historically appreciated when investor confidence in the economy and government is weak. It jumped as much as 25% during the 2008-09 financial crisis.

The shiny metal is a formidable defense against the falling value of paper currency. You can invest in gold by purchasing jewelry, coins, bars, or gold ETFs. The physical gold makes a little less sense because it carries a markup. There is also the risk of theft if you store it at home. In contrast, ETFs have a lower cost and lower risk than physical gold.

Investors have used gold as a hedge against inflation for a long time. The yellow metal rallies when the markets expect inflation to rise. The United States is printing money at record pace to service its mounting debt, which could fuel inflation. Wars and geopolitical tensions also prompt investors to seek refuge in the yellow metal.

Gold doesn’t yield anything vs treasuries which pay some interest. A 10g gold coin will still be a 10g gold coin even after years or decades. Its value depends on the sentiments of people hoarding it. When the economy is doing well, investors cut their gold holdings to invest in equity markets, which reduces its price.

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Disclaimer: This article is NOT an investment recommendation, Please see our disclaimer - Get our 10 free ...

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