And the winner is…
Gold, of course. 2025 will be remembered as the year gold thrashed bitcoin.
Notice the tight correlation between global M2 (cash and near-cash like treasury bills and money market funds) and gold. M2 reflects the rate at which money supply is being expanded by central banks. It’s also a precursor to inflation. Both gold and bitcoin are regarded as hedges against inflation.
The chart shows gold out-pacing bitcoin in 2025, which begs the question: what happened to gold’s vaunted ‘digital gold’ status?
Here's the investment performance race so far for 2025:
The JSE has had an outstanding year, massively skewed by commodity stocks, particularly gold and platinum. Exclude these, and it has a rather ho-hum year.
The M2 money supply graph sown above seems troubling on many levels – if central banks keep expanding money supply, inflation will inevitably follow and fiat currencies will lose value.
That is certainly true but what if the world’s largest economies such as the US and China can actually grow their way out of trouble?
Analyst Ed Yardeni points to a shortage of labour that technology will solve, help keep inflation down and allow wages to rise faster than prices, boosting corporate profits. In fact, he says, what’s coming is more akin to the Roaring 20s when life seemed fast-paced, prosperous and fun. That’;s what Yardeni predicts is coming.
Yet there are plenty pessimists around who see a dire future for Mankind, all distilled into the one graph you above – the unsustainable rise in M2.
Yardeni sees a surprisingly positive outcome from AI in biotech, robotics and nanotechnology. If that’s the case, could we see economic growth in the US and China strong enough to pay down huge debts. That’s certainly a possibility.
Also optimistic about financial markets over the next 12months is Anthony Pompliano, CEO of Professional Capital Management. “TheAI boom is very real and likely only beginning. The fact that our politicians can’t stop spending money means that gold and bitcoin will continue doing well.And maybe the only asset I am bearish on for the next 2-3 years is US treasuries, which seem to be designed to go down forever in value.”
US Treasuries are down more than 40% over the last 5 years and are also negative over the last 12 months, notes Pompliano. US stocks and gold have done well in light of the return to monetary easing and misplaced inflation fears. Add in the AI boom for the equity market and it has been a great year for anyone holding these assets.
“Public equities are poised to continue moving higher. TheAI boom is very real and likely only beginning. The fact that our politicians can’t stop spending money means that gold and bitcoin will continue doing well.And maybe the only asset I am bearish on for the next 2-3 years is US treasuries, which seem to be designed to go down forever in value.”
What’s also happening in the market is the breakdown in correlations. Assets are not moving in lock step like they were in recent years. Bitcoin has broken – at least temporarily – its historic correlation to M2. This creates more opportunities for investors to create outperformance…or to underperform the market.
