Will Cryptocurrencies Replace Gold?

The World Gold Council has issued quite a few interesting papers recently. In this edition of the Gold News Monitor, we discuss the most provocative ones. Such as the money worthiness of gold compared to Bitcoin. Or the ongoing gold repatriation trend as Romania recently joined the fray. What kind of learnings can the precious metals investors draw here?

Cryptocurrencies Are No Substitute for Gold

In January, the World Gold Council (WGC) published an investment update about the cryptocurrencies. The main aim of the report is to refute the claim that cryptocurrencies could replace gold. The authors do not agree, pointing out that gold differs substantially from cryptocurrencies. In particular, the yellow metal:

  • is less volatile – the dollar-denominated gold price is about 10 times less volatile than Bitcoin price;
  • has a more liquid market - Bitcoin turnover is $2 billion a day on average, which is roughly less than 1 percent of the total gold market that has a turnover of around  approximately $250 billion a day;
  • trades in an established regulatory framework;
  • has a well-understood role in an investment portfolio;
  • has little overlap with cryptocurrencies on many sources of demand and supply;
  • has broad appeal outside the tech-savvy demographics.

All these differences explain why Bitcoin and cryptocurrencies are not a substitute for gold. In particular, the former should not be considered a safe havens. The best example is Q4 2018, where global stock markets experienced their worst quarter since 2009 - cryptocurrencies then performed as risky assets and fell, while gold rallied. Although you can also pick periods when gold did not behave like a safe-haven asset, we generally agree that cryptocurrencies are not substitute for the precious metals. Bitcoin was designed to mimic gold, but it has still to prove its moneyness, while gold has a proven few thousand years history as a monetary asset.

Gold Demand Trends in 2018

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If you enjoyed the above analysis and would you like to know more about the most important macroeconomic factors influencing the U.S. dollar value and the price of gold, we invite you to read the ...

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