Gold in the 2020s

I think the 2020s are going to be an inflationary decade. There will be the occasional deflationary period, but the trend of prices inflating over time will continue.

The Fed will hike interest rates whenever possible to try to curtail inflation and send it back to 2%. The key words being whenever possible.

Most of the world is trying to recover and get back to normal life in post-pandemic times. But there are still many major structural issues, and new unkown problems that could happen any time. This is why I find it hard to believe that the Fed is going to keep interest rates high for too long. They might go back to an “easy money” policy. They might go back to monetizing debt.

This is where gold comes in. Yes, gold is old, but with age comes experience. The world already knows how to use gold. The world already uses gold.
So it’s safe to assume that gold will do what the world expects it to do, which is to preserve or increase purchasing power in the face of rampant inflation.

Production of paper money far outpaces the production of gold. Supply chain issues and rising costs of conducting operations is likely to keep gold production at a level that is lower than what the market demands, until it can catch up. The price of gold will get pressured upwards.

Of course, something similar will happen to Bitcoin. The issuance schedule of new coins does not change with increases or decreases of capex. No matter how much money is put into the Bitcoin mining industry, the supply of coins will still follow a preordained path, enforced by the protocol.

For various reasons, it is probable that Bitcoin’s value grows more than that of gold in the next decade. This isn’t to say that the world will assign more total value to Bitcoin instead of gold. Gold will probably still be the dominant form of store of value in the world. It’s just that Bitcoin has more room to grow.

If you have a lower risk tolerance, gold is probably the better option.

I do think that on a long time horizon, Bitcoin will suck out some (or most) of gold’s monetary premium, but that’s a story for another day. Right now, all I can say is, unless something big happens, gold will probably perform well during the 2020s.