Investors who have owned stocks in the last year have generally experienced some big gains. In fact, the SPDR S&P 500 (NYSE: SPY) total return over the last 12 months is 74.3%. But there is no question some investments performed better than others along the way.
Gold’s Disappointing Year: While the stock market has been extremely strong since it bottomed on March 23, 2020, the SPDR Gold Trust (NYSE: GLD) ETF has been surprisingly weak.
A look at the 2008-2009 financial crisis shows that following aggressive stimulus spending, investors concerned about hyperinflation sent gold prices soaring from under $700 per ounce in late 2008 to as high as $1,923 per ounce in 2011.
When the stimulus-fueled hyperinflation investors feared never actually materialized, gold prices dropped back down to as low as $1,045 per ounce by late 2015.
In 2020, unprecedented pandemic-driven U.S. stimulus measures once again sent gold prices soaring to as high as $2,089.20 in mid-2020. The buying was driven in large part by the same hyperinflation fears behind the previous bull market in gold from 2008 through 2011.
However, this time around, investors found a new popular inflation hedge: Bitcoin (CRYPTO: BTC).
Several factors led to a surge in Bitcoin buying in 2020. First, investors concerned about the potential long-term damage that trillions of dollars in federal stimulus could do to the value of the dollar have flooded into Bitcoin as a potential safe-haven play. Second, younger Americans receiving three rounds of direct stimulus payments have poured a significant chunk of that cash into investments, including Bitcoin.
By the beginning of March 2020, the volatile cryptocurrency was at $8,600 after news of the coronavirus spreading in China prompted concerns about a pandemic.
When the stock market bottomed on March 23, Bitcoin investors started feeling the pain. Investors who had purchased Bitcoin as a COVID-19 flight-to-safety trade were down big, with Bitcoin priced at around $5,800 at the time. But, once the government stimulus payments started flowing, Bitcoin regained its swagger.
At the beginning of 2020, gold prices were hovering around $1,500 per ounce. By August, pandemic fears had pushed gold prices to new all-time highs above $2,000 per ounce.
At that point, the gold rally ran out of steam. Not surprisingly, the rally in Bitcoin started to accelerate from that point forward with all-time highs above $20,000 in December 2020. By that time, gold prices were back down to around $1,800 per ounce.
Gold In 2021, Beyond: Gold prices are now back down to around $1,733 an ounce, while Bitcoin surpassed $60,000 for the first time in history.
The gold rally may have fizzled for now, but investors who bought the GLD ETF one year ago and held on have still managed to generate a small profit on their investment. In fact, $1,000 in the GLD ETF bought on March 23, 2020, would be worth about $1,059 today.
Looking ahead, the Federal Reserve is now projecting 2.4% inflation in 2021. If inflation rates continue to rise, gold investors will be paying close attention to how gold prices react compared Bitcoin prices.
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