Gold News

New Gold Investment Doubles as Cryptos Sink

Crypto investing not replacing gold in 2021...
 
INVEST in gold or buy Bitcoin? asks Adrian Ash at BullionVault.
 
The debate just got a very blunt answer in May.
 
Gold investment demand jumped last month as bullion prices rose and official data showed inflation in the cost of living at multi-decade highs.
 
Unlike gold and inflation, cryptocurrencies sank in contrast, knocking one-third off the price of Bitcoin and erasing all of early May's 135% spike in 'joke' crypto Dogecoin.
 
That plunge coincided with gold prices rising at the fastest pace in 10 months, gaining 7.5% in US Dollar terms to $1899 per ounce in London's professional market – the third highest monthly close ever behind July and August 2020.
 
Chart of gold priced in Dollars vs. Bitcoin. Source: St.Louis Fed
 
Still, one of these "assets" still costs 4 times more than it did at New Year, and it ain't gold.
 
It's also no clearer that last month's outflows from Bitcoin went to invest in gold than it was when J.P.Morgan's headline-hungry analysts said the reverse at New Year. But the action this spring highlights the strong underlying demand for gold against the volatility in cryptocurrencies.
 
As for inflation – now crushing the returns offered to bondholders to the worst negative real rates since 1975 – crypto is often promoted as some kind of natural hedge against fiat currency.
 
But Bitcoin's novelty and limited supply simply aren't enough – not on any evidence so far –to compete with physical gold's timeless, global and proven appeal as a long-term store of value.
 
Gold investment, net of client selling, almost doubled on BullionVault in May, up 97.5% from April to the most in four months.
 
That net inflow – reaching almost a quarter of a tonne (237kg) – took the total quantity of gold owned by BullionVault users insured inside specialist storage in each client's choice of London, New York, Singapore, Toronto and most popular Zurich to 46.9 tonnes, a new record in the company's 16-year history.
 
Added to client holdings of silver and platinum, that saw us caring for $3.9 billion of gold, silver and platinum for over 95,000 users from 175 countries (£2.8bn, €3.2bn, ¥439bn) at the end of the month.
 
Chart of the Gold Investor Index, all data to May 2021. Source: BullionVault
 
Even so, there is no gold rush as yet.
 
Yes, the number of people choosing to buy gold across the month of May rose 11.1% from April's 15-month low on BullionVault.
 
The number of sellers however rose 26.4% from April's 6-month low as some existing investors took profit using the low-cost bullion exchange's 24/7 website and mobile apps.
 
Together that kept the Gold Investor Index – a unique measure of private-investor behaviour – unchanged at 55.4.
 
The Gold Investor Index tracks how many people buy gold rather than selling it on BullionVault as a proportion of all existing owners at the start of the month. A reading of 50.0 would signal an exact balance between the number of buyers and the number of seller.
 
The index has now averaged 55.0 across the full historic series. Here in June 2021, the Gold Investor Index has come in above that level in all but 1 of the last 22 months. It dipped to 53.5 in January 2020, eve of the global Covid Crisis.
 
Bottom line?
 
Whatever role crypto might play today or in future, it can't replace gold as a diversification tool for savers and investors wanting to cut their overall portfolio risk.
 
While the precious metal isn't immune to volatility, gold has never cut its price in half inside a week. Longer-term gold has repeatedly risen when risk assets like the stock market have lost value.
 
Psychologically, gold offers the most physical of all trading assets, and it's finding strong demand as stock markets wobble and cryptos crash.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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