The price of gold has risen 12 percent in the past 12 months: can it be a better investment than BTC?
The U.S. chain Costco has been selling gold bullion lately: it has literally sold out, demonstrating investors' lack of confidence in the economy of late. Positive implication for BTC as well?
Recently Costco, a U.S. chain of wholesale hypermarkets, caused a stir by introducing the option of buying gold bars. They all sold out in a very few hours.In times of economic uncertainty and rising inflation, interest rate hikes, it is not surprising that investors are turning to traditional safe-haven assets such as precious metals and especially gold, which always cyclically returns. Will the sudden increase in demand succeed in pushing the value of gold above $2,050 per ounce, a level last seen in early May?
Over the past 12 months, the price of gold has soared an impressive 12 percent. This rally has been fueled in part by the Federal Reserve's efforts to combat inflation by keeping interest rates high-a move that benefits precisely those scarce assets like gold. Over the same period, gold's returns roughly matched those of the S&P 500, which posted a 15.4 percent gain, and WTI oil itself, which rose 12 percent. However, such figures pale in comparison to the staggering 39.5 percent increase in Bitcoin, a crypto now sailed around the world.
Still, it is important to note that gold's lower volatility of 12 percent makes it an attractive choice for investors who want to manage risk. While BTC has trends that are far from outlined.
Risk-return scenarios favor gold:
One of gold's strengths is its reliability as a store of value in times of crisis and much uncertainty. As the world's largest tradable asset, valued at more than $12 trill.ion, gold is the leading candidate to benefit from capital inflows when investors exit traditional markets such as stocks and real estate and the crypto world
According to data from the World Gold Council, central banks were net buyers of gold for the second month in a row, adding 55 tons to their reserves, with notable purchases mainly from China, Poland and Turkey. Bloomberg reported that Russia plans to bolster its gold reserves by an additional $433 million to protect its economy from volatile commodity markets, especially in the oil and gas sector. Taking a closer look at production data, Visual Capitalist estimates that about 3,100 tons of gold was produced in 2022, including 650 tons in Russia and China. The World Gold Council has also predicted that if gold prices continue to rise, total production could reach a record 3,300 tons in 2023.
A key parameter to consider in assessing gold's investment potential is its stock-to-flow ratio, which measures the production of an asset relative to the total existing quantity. Gold's stock-to-flow ratio has remained stable at about 67 over the past 12 years. In contrast, Bitcoin has undergone three scheduled halvings, effectively reducing its issuance: it currently boasts a stock-to-flow ratio of 59. This suggests that Bitcoin, with the next halving, will have a lower equivalent inflation rate than the precious metal.
Bitcoin may outperform gold even with lower inflows:
Bitcoin's performance could outperform that of gold as the U.S. government approaches a shutdown due to reaching its debt limit, prompting investors to look for alternative, scarce assets. BTC's $500 billion market capitalization makes it easier to jump in price, even with much smaller inflows than gold. In addition, central banks may be forced to sell their gold reserves to cover expenses, further increasing interest in Bitcoin. Especially with the near and future trend of falling interest rates expected in 2024.
There is also the possibility of new gold deposits being discovered. Although gold remains a staple in the world of safe-haven assets, BTC's impressive gains and its lower equivalent inflation rate make it a strong contender for investors seeking alternative stores of value. In any case, ongoing economic uncertainty and the Federal Reserve's monetary policies will continue to benefit both assets.
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