09 March 2022
Inflation hedges: Is fine wine the new gold?
Gold has traditionally been viewed as a ‘safe haven’ during periods of inflation, but fine wine outperformed during the 2021 inflation spike.
Gold is not always what glitters
We’ve written before about rising inflation and how fine wine can benefit an investment portfolio. Traditionally, gold is also thought of as a good investment to hedge against the negative impacts of inflation due to its status as a scarce real asset upon which society has valued for centuries. Gold has certainly performed very well in recent weeks amid the spike in uncertainty stemming from the conflict in Ukraine.
However, the current period of high inflation stretches back in the first half of 2021, and gold’s performance last year took some shine off its track record. Gold prices sank by -3.64% in 2021 (USD/ounce) while inflation surged. In the US, consumer price index (CPI) inflation rose 7.0% over 2021, the largest 12-month jump since 1982. In the UK, CPI prices rose by 5.4% – the highest increase since the Office of National Statistics’ records began in 1997. The OECD’s data across all G-20 economies shows CPI rose 6.1% over the 12-months through December.
Inflation decreases the purchasing power of money as well as the value of an investors’ portfolio. This makes gold’s negative performance in 2021 even lower in real (inflation-adjusted) terms. Gold does have some notable wins during periods of high inflation, such as the 1970s, but over long periods, gold may not always offer the best option.
Fine wine’s consistency
While gold stumbled in 2021, fine wine surged to record highs. The Liv-ex 1000 index, the broadest measure of the market, ended the year up 19.08%, keeping its real returns comfortably in positive territory. Using the G-20 CPI inflation rate, the Liv-ex 1000’s real return sat at 12.23% in 2021.
This wasn’t just a short-term blip, either. The below graph illustrates how fine wine’s performance in 2021 has helped keep its return easily above the inflation rate in G-20 economies since the inception of the Liv-ex 1000 index in January 2004.
 Source: Liv-ex as of 17 February 2022, analysis by Cult Wine Investment. Past performance is not indicative of future returns.