In late 2020, I’d debated whether investors should bet on Bitcoin or gold coming into 2021. The yellow metal was unable to recapture the momentum that saw it climb to an all-time high above US$2,000/ounce in the first year of the COVID-19 pandemic. Meanwhile, Bitcoin and the cryptocurrency space continued to reward the faithful. Bitcoin and peers like Ethereum rose to record levels in 2021.
Today, I want to discuss which alternative asset is the better hold as we move into 2022. Let’s jump in.
The case for the crypto market in 2022
Cryptocurrencies have been solidly established in the mainstream in 2020 and 2021. In February, Canada saw the launch of the very first Bitcoin-focused exchange-traded fund (ETF): the Purpose Bitcoin ETF (TSX:BTCC.B). This means that Canadian investors can more effectively track the world’s largest digital currency in a registered account like a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP).
Coins have not been the only beneficiary. Crypto miners like Hut 8 Mining (TSX:HUT)(NASDAQ:HUT) have also experienced enormous growth. Shares of Hut 8 Mining have climbed 348% in 2021 as of close on November 16. The stock has soared 1,165% in the year-over-year period.
It is hard to bet against crypto, as the fledgling investing space has gorged on an ocean of liquidity during the COVID-19 pandemic. However, central banks in North America have telegraphed their intention to pursue rate tightening in the quarters ahead. Oddsmakers expect the Bank of Canada (BoC) to move forward on five rate hikes next year. Meanwhile, money markets anticipate at least two rate hikes from the U.S. Federal Reserve in 2022.
Higher interest rates and a more conservative market environment could torpedo momentum for crypto. Moreover, investors may be searching for a more reliable and battle-tested alternative asset.
Here’s why gold is a great hold ahead of the New Year
Gold appeared to prove its mettle as the go-to safe haven when the COVID-19 pandemic disrupted global markets in the first half of 2020. The yellow metal erupted and rose above US$2,000/ounce, an all-time high. However, it retreated in the face of a resurgent stock market. It sank below US$1,7000/ounce in the beginning of 2021.
The price of gold has gained momentum in the fall. It was trading above US$1,860/ounce at the time of this writing. Interest rate hikes have the potential to disrupt markets, as investors have enjoyed two years of historically low interest rates and very accommodative monetary policy.
Barrick Gold (TSX:ABX)(NYSE:GOLD) is one of the largest gold producers on the planet. Its shares have dropped 17% in 2021 as of close on November 16. However, the stock has increased 9.6% month over month. In Q3 2021, adjusted net earnings fell to $419 million due to lower realized gold prices. Shares of this gold stock possess a favourable price-to-earnings (P/E) ratio of 18.
Kinross Gold (TSX:K)(NYSE:KGC) is another top Toronto-based gold miner. The stock has dropped 15% in 2021. Its shares have climbed 14% month over month. In the third quarter of 2021, Kinross announced that it was on track to meet its revised production guidance. Shares of this gold stock possess a very favourable P/E ratio of 8.6. It offers a quarterly dividend of $0.03 per share, which represents a 1.7% yield.
Crypto or gold: Which is the better hold?
Crypto has put together an incredible run since the middle of 2020. However, I’m more inclined to stash gold as a hedge in what looks like an overheated market heading into the New Year. Moreover, gold stocks like Barrick Gold and Kinross offer nice value right now.