May 5, 2020
-Gold and cryptocurrencies failed as a hedge during the COVID-19 crisis. Note that gold and cryptocurrencies have roared back – and so has the stock market. This is suggestive of positive correlation.
-It is true that some gold supply chains and ease of arbitrage has been disrupted because the transport of gold relies on air travel. However, I don’t think this is a big deal and unlikely to lead to short squeezes and other market disruption.
-My research shows that gold is an unreliable hedge looking at centuries of data. Gold has volatility of 15% per annum – about the same as the equity market. Cryptocurrencies have volatilities closer to 90% and there is very little data. They are a very risky safe haven. However, some classes of cryptocurrencies, that are collateralized (for example, with gold) hold considerable promise to disrupt the physical holding of gold as well as ETFs backed by gold.