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Combination of gold, bitcoin and bonds to beat inflation, deflation scenarios – Bloomberg Intelligence

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(Kitco News) The investment environment will be changing in 2022, and a combination of gold, bitcoin and bonds could be the winning one, according to Bloomberg Intelligence.

The commodities space could be at risk of a reversal following an inflationary spike this year, said Bloomberg Intelligence senior commodity strategist Mike McGlone.

"Sustained inflation from commodities may be more elusive than ever. We expect 2022 to be a good test and a similar price cure as peaking grains in 2021. The propensity for money supply and the stock market to sustain about 40% appreciation since the end of 2019 is low. A Bitcoin, gold and long-bond combination may outperform in most scenarios," McGlone said in a report. "Commodity supply and demand elasticity are ripe in 2022 to regain pre-pandemic force."

Gold is set up very well for 2022 after developing solid support at the $1,700 an ounce level this year.

"Gold recovering from around $1,700-an-ounce support and the inability of the Treasury long-bond yield to sustain above 2% may be sniffing out a resumption of the predominant deflationary forces prior to 2020," he said. "Gold … [is] looking like a resting bull market, cleansed by a correction. When priced in fiat currencies, the metal has a greater propensity to rise, notably since its supply is limited, contrary to currency. Gold and Bitcoin have high potential to continue advancing in price, notably, if Treasury yields resume enduring downward trajectories, following Japan and most of Europe."

Inflation could peak next year with the deflationary environment likely to take over in the longer term, McGlone pointed out. This view is in contradiction to rising market fears that inflation just keeps heating up and might not be as transitory as many have thought. The latest inflation data out of the U.S. saw the annual consumer price index (CPI) jump to 31-year highs.

"The commodity and inflation bar is too high for sustaining this year's advances in 2022, based on history. The last two times the Bloomberg Commodity Spot (BCOM) reached record highs (2008 and 2011), CPI also rose, but it wasn't too long afterward that the inflation gauge turned negative. We see greater forces of the cure for higher commodity prices potentially coming to fruition in 2022."

A reversion is commodities could look like a crash in 2022, McGlone wrote.

"Rapidly advancing technology and ingenuity are empowering humans to produce most commodities, notably crude oil and natural gas, at lower costs. Bitcoin is replacing gold in portfolios and becoming the global digital reserve asset in a world going that way. Some reversion of the 2021 commodity bounce may feel like a crash," McGlone warned.

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