Both gold and Bitcoin hit all-time highs this year, but their sharp gains began long after inflation peaked in June 2022.

The sudden resurgence of inflation concerns is a bullish sign for recognized inflation hedges such as gold and Bitcoin, but worried investors Investors shouldn't overlook a simpler solution: stocks.

The Federal Reserve cut interest rates for the third time this year on Wednesday, but lowered its forecast for a rate cut in 2025, sparking concerns on Wall Street and the Dow Jones Industrial Average falling. Over 1000 points. At present, the U.S. economic growth is still strong and inflation remains high. Therefore, although the Federal Reserve cuts interest rates as scheduled, concerns about inflation are a key reason for the sharp rise in the 10-year U.S. Treasury yield.

The prospect of lingering inflation could provide a tailwind for gold and Bitcoin, but the reality is worse than the advocates of these assets would have you believe. Much more complex. Both Bitcoin and gold are considered inflation hedges due to their limited supply, which is not under the direct control of any policymaker: gold must be mined from the ground, and Bitcoin is produced by "mining," which can be mined The total supply of coins is fixed.

In October this year, legendary investor Paul Tudor Jones ) said in an interview with CNBC: "All roads lead to inflation... I am long gold and I am long Bitcoin." This video is still often shared by Bitcoin fans.

The argument for hedging against inflation is easy to understand, but reality doesn’t always match the theory. Bitcoin and gold both fell on Wednesday as concerns about inflation pushed up long-term interest rates.

Bitcoin price was close to $105,000 before the Federal Reserve announced its interest rate decision on Wednesday, before falling sharply. Bitcoin fell to $98,000, according to CoinDesk, and gold closed down 0.3% on Wednesday and fell another 1.5% on Thursday, according to Dow Jones Market Data.

The long-term performance of these two assets is also mixed. Both gold and Bitcoin have rallied and hit all-time highs this year, but their big gains have come amid inflation hitting 2Starting long after the June 2022 peak, gold's return in 2022 was -0.4%, and Bitcoin plummeted 64%.

Why does this happen? Investors buy gold to protect their portfolios from inflation, but gold prices also reflect another countervailing force: interest rates. Because gold does not generate cash flows, it becomes less attractive relative to bonds when interest rates are high. In order to combat high inflation, the Federal Reserve has been steadily raising interest rates in 2022. Therefore, despite high inflation, short-term Treasury bonds are more attractive than gold in the eyes of investors.

The above dynamics may also be affecting the price of Bitcoin. However, it is almost certain to say that the biggest driver of Bitcoin price is speculation. Bitcoin’s short history makes it more difficult to assess long-term price dynamics, but prices have largely followed the influencer stock craze that emerged during the COVID-19 pandemic. The launch of Bitcoin ETFs this year and the increasing odds that crypto-supporting Trump will win the presidential election have brought new "tailwinds" to Bitcoin.

Of course, even if Bitcoin and gold cannot serve as short- or medium-term inflation hedges, they can still serve investors as long-term stores of value. The World Gold Council, an industry group, often says: "Gold has maintained its value for thousands of years."

However, if the investment horizon is So long, investors should consider investing in stocks and just keep up with the rise in stock prices. Inflation is likely to negatively impact stock market returns in the short term as companies struggle to raise prices fast enough to cope with rising costs, and the S&P 500 isn't doing too well in 2022, down more than 18% for the year.

But over time, corporate profits will adjust to inflation and stock prices will rebound, as they have over the past two years. Over the long term, stock investors can also benefit from profit growth that neither Bitcoin nor gold can provide.