As economic uncertainty and rising inflation continue to make headlines, investors are increasingly turning to traditional safe-haven assets like gold. Costco recently made headlines after rapidly selling out of gold bars, highlighting the demand for this precious metal. The question on many investors’ minds is whether gold’s performance will eventually push its price above $2,050, a level last seen in early May.
In the past 12 months, the price of gold has surged by an impressive 12%. This rally has been partially fueled by the Federal Reserve’s efforts to combat inflation by maintaining higher interest rates, a move that benefits scarce assets like gold. While gold’s performance is commendable, it’s important to put it into perspective.
Looking at the past year, gold’s returns have roughly matched those of the S&P 500, which saw a gain of 15.4%, and WTI oil, which increased by 12%. However, these gains pale in comparison to the staggering 39.5% rise of Bitcoin. Despite this, gold’s lower volatility at 12% makes it an attractive choice for investors looking to manage risk.
One of gold’s strongest selling points is its reliability as a store of value during times of crisis and uncertainty. As the world’s largest tradable asset, valued at over $12 trillion, gold is often the primary candidate to benefit from capital inflows whenever investors exit traditional markets like stocks and real estate. For example, 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 have also been net buyers of gold, adding 55 tons to their reserves in the past month. Notable purchases have been made by China, Poland, and Turkey. Russia also plans to bolster its gold reserves by an additional $433 million to shield its economy from the volatility of commodity markets, especially in the oil and gas industries.
Looking at production figures, Visual Capitalist estimates that approximately 3,100 tonnes of gold were produced in 2022, with Russia and China accounting for 650 tonnes of this total. The World Gold Council predicts that if gold prices continue to rise, total production could reach a record high of 3,300 tonnes in 2023.
Examining gold’s stock-to-flow ratio, which measures the production of a commodity relative to the total quantity in existence, is another crucial metric. Gold’s stock-to-flow has remained stable at around 67 for the past 12 years. In contrast, Bitcoin has experienced three scheduled halvings, effectively reducing its issuance, and currently boasts a stock-to-flow ratio of 59. This suggests that Bitcoin has a lower equivalent inflation rate compared to gold.
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. Bitcoin’s $500 billion market capitalization also allows for price jumps even with smaller inflows. Additionally, the possibility of central banks selling their gold holdings to cover expenses further boosts Bitcoin’s appeal.
In conclusion, both gold and Bitcoin can be seen as viable investment options in times of economic uncertainty and rising inflation. With global central banks adding to their gold reserves and Bitcoin’s impressive performance, investors have choices when it comes to safeguarding their wealth. The ongoing economic uncertainty and the Federal Reserve’s monetary policies will likely continue to benefit both assets.
