Investors Turn to Gold as Safe-Haven Asset
This week, Costco made headlines as it quickly sold out of gold bars. In times of economic uncertainty and rising inflation, it’s no surprise that investors are turning to traditional safe-haven assets like gold. The question now is whether gold’s performance will push its price above $2,050, a level last seen in early May.
Gold’s Impressive Rally
In the past 12 months, the price of gold has surged by 12%, fueled in part by the Federal Reserve’s efforts to combat inflation through higher interest rates. This move benefits scarce assets like gold. However, it’s important to put gold’s performance into perspective. During the height of the COVID-19 pandemic, gold only dipped by 2.2% in the 30 days leading up to March 24, 2020.
Central Banks Boosting Gold Reserves
Data from the World Gold Council shows that central banks have been net buyers of gold for two consecutive months, adding 55 tons to their reserves. China, Poland, and Turkey have made notable purchases. Additionally, Russia plans to bolster its gold reserves by an additional $433 million to protect its economy from commodity market volatility.
Production Figures and Stock-to-Flow Ratio
In 2022, approximately 3,100 tonnes of gold were produced, with Russia and China accounting for 650 tonnes. The World Gold Council predicts that if prices continue to rise, total production could reach a record high of 3,300 tonnes in 2023. When evaluating gold’s investment potential, the stock-to-flow ratio is a crucial metric. Gold has maintained a stable ratio of around 67 for the past 12 years.
Bitcoin’s Potential to Outperform Gold
Despite gold’s status as a safe-haven asset, Bitcoin has the potential to outperform it. If the U.S. government approaches a shutdown due to reaching the debt limit, investors may seek alternative scarce assets like Bitcoin. With its $500 billion market capitalization, Bitcoin’s price can easily jump even with lower inflows. Additionally, central banks may be compelled to sell their gold holdings, further boosting Bitcoin’s appeal.
Hot Take: Bitcoin vs. Gold in Uncertain Times
While gold remains a stalwart in the world of safe-haven assets, Bitcoin’s impressive gains and lower equivalent inflation rate make it a strong contender for investors seeking alternative stores of value. The ongoing economic uncertainty and the Federal Reserve’s monetary policies will continue to benefit both assets.
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