Gold's status as inflation hedge 'somewhat exaggerated,' says BlackRock exec

BlackRock executive Russ Koesterich says gold is failing as an equity hedge amid massive outflows from bullion ETFs into assets like Bitcoin.

With the price of gold down more than 11% over the last six months, some investment managers are questioning its status as a hedge asset.

According to Bloomberg, Russ Koesterich, portfolio manager at BlackRock’s Global Allocation Fund, gold is currently failing to prove its effectiveness as a viable hedge against inflation.

Indeed, Koesterich countered the popular hedge asset narrative for gold, stating, “Gold’s ability to hedge against inflation has been somewhat exaggerated. While it is a reasonable store of value over the very long-term — think centuries — it is less reliable across most investment horizons.”

The current investment horizon appears to be one dominated by the fallout of the coronavirus pandemic and the various responses by governments by way of economic stimulus packages.

Inflation fears are currently palpable amid massive stimulus spending to trigger economic recovery.

Since setting a new all-time high of $2,100 per ounce back in the summer of 2020, gold has been on the decline and is currently trading above $1,700 as of the time of writing.

Gold’s price decline has also seen significant outflows from gold ETFs with some market analysts stating that investors are pivoting to Bitcoin (BTC). In November 2020, Chinese banks began suspending the creation of new precious metal trading accounts due to rising price volatility for the likes of gold.

In contrast to gold’s spot price performance, Bitcoin is up almost 90% year-to-date as the largest crypto by market capitalization continues on its positive price run since October 2020. As previously reported by Cointelegraph, senior Bloomberg strategist Mike McGlone has said BTC is "pushing aside" gold as a store of value asset.

Koesterich’s warnings about holding gold as a hedge in the current investment horizon come on the heels of somewhat positive comments by BlackRock about Bitcoin.

The world’s largest asset management company previously identified Bitcoin derivatives as a possible investment foray in filings with the United States Securities and Exchange Commission at the start of the year.

Back in November 2020, Rick Rieder, chief investment officer at BlackRock Financial Management stated that Bitcoin could displace gold to a large extent.