Bitcoin Hasn’t Killed Gold. Here’s Why the Precious Metal Is Making a Comeback.

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Jason Bennee / Dreamstime

The original counterpoint to paper money – gold – overshadowed by the wild swings in Bitcoin and other cryptocurrencies, has been quietly booming this month.

Gold mining companies’ stocks have rallied even more than the metal and have rallied relatively strongly against the broader stock market. Gold mining stocks tend to be a leading indicator of gold bars because of their leverage relative to the movements of the metal.

The

VanEck Vectors Gold Miners exchange traded fund

(Ticker: GDX) is up 18.31% from its late March low. The rebound follows a real bear market decline of 35.4% from the ETF’s 52-week high last August to its 52-week low in March. But last month the gold-stock ETF is up 8.7%, compared to a 5.7% increase in the

S & P 500,

according to Yahoo Finance.

The yellow metal itself has risen off the mat in recent weeks, rising to $ 1,795 an ounce, near a two-month high and up 6.51% from its late March low. That’s still well below the recent high of $ 1,951 an ounce in early January. In a customer announcement released late Wednesday, Bespoke Investment Group said gold had risen above its 50-day moving average.

The recovery of the barbaric relic, as John Maynard Keynes called the metal, has been overshadowed by the spins of Bitcoin, including last weekend’s flash crash and other cryptocurrencies, along with the public debut of

Coinbase

(Ticker: COIN.) Doge Day proved a failure as the cops who backed the one-off joke crypto coin failed to get it down to $ 1. More important,

JP Morgan

Quantitative and derivative strategists point to a shift in Bitcoin futures after the cryptocurrency didn’t break above $ 60,000, showing traders are reducing their positions.

In addition to Bitcoin, other current indicators from the bond market have worked in favor of gold. In particular, when real long-term interest rates – bond yields after adjusting for inflation – fell, the metal revived.

The decline in real interest rates is reflected in the returns on inflation-linked Treasury bills. TIPS pay a real return while their net present value is adjusted according to the consumer price index. The real return on 10-year TIPPS had risen sharply at the beginning of the year, from minus 1.06% in February to minus 0.56% in mid-March. Since then, the bond market has rallied and the 10-year TIPS yield fell deeper into negative territory, back to minus 0.78%.

The better relative performance of gold mining stocks like

Barrick Gold

(Ticker: GOLD) is another positive result for the metal. Gold stocks tend to be more volatile than the metal because the stocks offer a leveraged game. However, the mining stocks can also bring dividend income. In fact, Barrick’s dividend yield of 1.58% matches that of the 10-year benchmark Treasury note while providing inflation protection that bonds cannot.

Inflation remains the number one concern for most investors. The Federal Reserve’s stated goal of raising inflation “moderately above” its 2% target appears to be backed up by its super-simple policy of near zero interest rates and expanding its balance sheet at an annual rate of over $ 1.4 trillion . At the same time, the federal budget deficit is estimated by the Congressional Budget Office at US $ 2.3 trillion for fiscal year 2021, equivalent to 10.3% of gross domestic product. This would be the second largest deficit since 1945 after 14.9% of GDP in the previous year. With this monetary and fiscal backdrop, it is not surprising that investors are confused about the decline in bond yields.

In any case, cheap and abundant money is raising gold and mining stocks again, even if cryptocurrencies stutter for the time being.

Write to Randall W. Forsyth at randall.forsyth@barrons.com