Table Of ContentCommodities as
an Asset Class
Essays on Inflation,
the Paradox of Gold and
the Impact of Crypto
Alan G. Futerman
Ivo A. Sarjanovic
Foreword byy John B. Taylor
Palgrave Studies in Classical Liberalism
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Alan G. Futerman Ivo A. Sarjanovic
Commodities
as an Asset Class
Essays on Inflation, the Paradox of Gold
and the Impact of Crypto
Alan G. Futerman Ivo A. Sarjanovic
University of the Latin American Torcuato Di Tella University
Educational Center Buenos Aires, Argentina
Rosario, Argentina
ISSN 2662-6470 ISSN 2662-6489 (electronic)
Palgrave Studies in Classical Liberalism
ISBN 978-3-031-17399-8 ISBN 978-3-031-17400-1 (eBook)
https://doi.org/10.1007/978-3-031-17400-1
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To our Professor, Rogelio Pontón
Foreword by John B. Taylor
Alan Futerman and Ivo Sarjanovic explore the most important and diffi-
cult questions of monetary economics in this book. And they put forth
their answers to the questions in clear and understandable way that bears
fundamentally on the future of cryptocurrencies such as Bitcoin, central
banking, and inflation in the US and other countries around the world.
Their purpose is not simply to show that commodities as an asset class
can sometimes be an effective hedge against inflation, but also to analyze
whether they can ever be a more permanent hedge against inflation.
They look at gold and modern cryptocurrencies, such as Bitcoin, and
in the process explain in simple terms how these alternative curren-
cies work in practice. Their book is an essential reference for monetary
economists and macroeconomists, and also for those who deal practi-
cally and frequently in real-world financial markets. It discusses alternative
ways forward, and it carefully considers the role of regulation and
de-carbonization proposals in these markets.
This work is based on the authors’ novel ideas, and these figure promi-
nently in the book. The ideas are derived from basic economics and
monetary theory, and they are tested carefully with real-word data. In
fact, there is a broad host of displays of key data series and facts, including
the clever employment of descriptive and intuitive graphs. Every idea is
backed by carefully illustrated visual displays of data.
The authors first examine the necessary conditions for commodities to
be an effective hedge against inflation, analyzing the actual behavior over
vii
viii FOREWORDBYJOHNB.TAYLOR
time of different investments that aim to reduce risk and their behavior in
comparison with the consumer price index. They thereby “challenge the
idea of commodities as being a perpetual inflation hedge.” They look at
gold and then move to examine cryptocurrencies, and show as well that
“Bitcoin does not have the attributes of good money. The crypto industry
may have the answer in the future, but we will have to wait and see what
type of alternative solutions are developed...”
The book challenges the recommendation that commodities are an
asset class that always work as an inflationary hedge. As the authors points
out: “The hedge works only if one is able to identify the proper timing to
go long so that this decision coincides with a raise in commodity prices
due to fundamental reasons. If that fundamental reason is missing, the
market will most likely not be able to sustain the inflation led overshoot
level, or the rally will be more short-lived than otherwise. This is the key.”
Using historical time series, they show that gold did not deliver a boom
after the COVID-19 crash. They thus conclude that commodities such as
gold should be bought and held “if and only if one is bullish about the
commodity” in comparison with other investments, and otherwise, they
show, one should “treat inflation basically as noise.” “Undeniably, there
are reasons to buy some commodities for hedging purposes at specific
times. However, the general case for such a trading approach should be
considered in the context of the fundamental drivers of this complex asset
class and not just as a mere reaction to inflation.”
They do not leave it at that, however. They go on and consider whether
a good market might be digital—such as cryptocurrencies or Bitcoin,
rather than gold. They clearly show that other assets classes have done well
from time to time, and a major example is Bitcoin and other cryptocur-
rencies too. They address the idea whether a “Bitcoin-based monetary
system (BTCMS)” would work.
The book does an excellent job of bringing in basic monetary theory,
including the famous quantity equation of money (MV=Py), where M is
money, V is velocity, P is the price level, and y is real GDP. Here, they
note that there is a serious macroeconomic risk: the central bank may
react in the same way to higher prices (or inflation) and not distinguish
whether the cause is M or V rather than y.
The book makes many other important points about monetary
economics, inflation, and central bank reaction functions. It shows that
inflation “should be treated as noise in the decision-making process of
investing in commodities as a long-term strategy-hedge…” But it also
FOREWORDBYJOHNB.TAYLOR ix
considers that the monetary authorities start to tighten as inflation rises,
drive interest rates up, and therefore create headwinds for commodities.
The authors show that “Commodities seem to react better to loose
monetary policy than to inflation,” and that prices experience downward
pressure when monetary policy gets tighter, even if higher inflation is
the reason for the tighter monetary policy. They note that this relation-
ship between interest rates and inflation is similar to the theory of Knut
Wicksell in which booms occur when the market interest rate goes below
the equilibrium interest rate and economic contractions occur when the
market interest rate goes back to equilibrium.
I conclude with three important ideas that I learned from this remark-
able book by Alan Futerman and Ivo Sarjanovic. I hope other readers
will take away these and many other ideas and make the most of them as
they consider investing in commodities or other assets or even trying to
improve the monetary environment.
• Commodities such as gold are a good asset in which to invest if one
finds a fundamental positive reason to do so. If one decides to ignore
such fundamentals and treat the asset a hedge on inflation, then one
should be especially attentive because it very well might be a poor
investment.
• Cryptocurrencies are better than gold as an inflation hedge and
should be considered as an alternative developing asset class.
• When one uses market capitalization as a measure of size, Bitcoin
is the biggest cryptocurrency and is becoming a collectible. But
it is still not real money, even though it is certainly possible that
cryptocurrencies will eventually replace money in the future.
September 2022 John B. Taylor
Mary and Robert Raymond
Professor of Economics
Stanford University
Stanford, CA, USA
George P. Shultz
Senior Fellow in Economics
Hoover Institution
Stanford, CA, USA
Acknowledgments
The intersection of commodities, finance, and economics is a complex
field, and the combination of trading experience with scientific tools is
very valuable to be able to analyze markets adequately.
We would like to thank all our colleagues, pupils, and different
investors for great discussions about these subjects. We learned a lot from
their different perspectives, which helped fine-tune our hypotheses.
Our debt of gratitude with all the people who read different chapters
of our draft or related articles and were willing to exchange ideas, and
offer critiques and their insights:
Marcelo Artal, David Behrends, Augusto Botto, Tom Brady, Martijn
Bron, Paul Chapman, Kevin Dowd, Eduardo Doyhambehere, Alex Eito,
Joaquin Eslava, Eddy Fay, Fausto Filice, Fernando Garcia Cozzi, Marc
Garrigasait Colomes, Louis Vincent Gave, Eugenio Giolito, Armando
Giordano, Robert Horster, Juan Houlin, Scott Irwin, Wouter Jacobs,
Soren Jensen, Jonathan Kingsman, Emery Koenig, Josh Martin, Carlos
Mera, Nicolas Merener, Pedro Nonay, Ignacio Nuñez, Marcelo Olar-
reaga, Javier Racciatti, Alex Sanfeliu, Pablo Scarafoni, Carlos Steiger,
Santiago Torres, Renco van Schie, Gert-Jan van den Akker, Roberto
Vassolo, Andres Velasco, Dave Whitcomb, and Lawrence H. White.
We especially wish to thank Prof. John B. Taylor for his generous
foreword.
Obviously, the responsibility for any errors is ours.
xi
