Investors using bitcoin as a hedge against inflationary risks could switch to gold.
There are in fact two dynamics that suggest an increased interest in gold.
The first, of course, is the price, as the ounce of gold has appreciated by 8% over the past month and a half, from around $1,740 to the current $1,880.
The second, as Clem Chambers suggests on Forbes, is that the restart of the world economy after the end of the pandemic could revive the jewellery trade, generating a strong recovery in demand for gold.
On the other hand, the price of gold itself has fallen sharply since August 2020, although the current level is still higher than the pre-pandemic level, when it did not exceed $1,700.
The fact is that since last year there has been a collapse in demand for gold from the jewellery sector, and an increase in supply due to the financial difficulties created by the pandemic.
According to Chambers, bitcoin is “a fantastic investment” when it’s rising, but “the worse haven in the world” when it falls. Since he believes the price of BTC could fall further, to -75% or -80% from its mid-April highs, he speculates that investors will flee BTC and naturally take refuge in gold.
Investors torn between gold and bitcoin
It must be said, however, that not many analysts familiar with crypto markets share such catastrophic predictions about the price of bitcoin, so Chambers’ prediction may well turn out to be wrong.
For example in Forbes, Frank Holmes draws a similar scenario but with an important difference.
Holmes argues that the collapse of the bitcoin price from its mid-April highs is “healthy”, and that the volatility shown by BTC in recent times is actually quite normal for an asset class that is still so speculative and emerging. He also points out that it is important to keep things in perspective, as the price of BTC is still over 30% higher than at the start of the year, and 315% higher than a year ago.
However, Holmes also points out that there has been a flight from bitcoin to gold in recent weeks, as investor interest is still focused on those assets that help combat the currency’s loss of value due to rising inflation.
Therefore, everything could depend on how the bitcoin price trend evolves in the coming weeks, or months. Should the decline stop and a new rise begin, it could remain an attractive investment to counterbalance inflationary risks, particularly of the US dollar, otherwise it could pass the baton to gold, as it seems to have done in recent weeks.