Gold just came off one of its worst weeks in nearly 15 years, with prices imploding just north of 10%. Things haven’t been any better for silver (it’s been a disaster for silver, down over 15% in a week) or any of the other metals, which are also under considerable pressure amid the Iran war and skyrocketing oil prices.
Undoubtedly, it might be surprising to see gold act the way it has in a time of war. After all, the shiny yellow metal was supposed to be a hedge against such geopolitical chaos. And while further rate cuts might be off the table (rate hikes instead?), which works against gold, as inflation expectations rise, I do think that the rather unorthodox plunge has more to do with liquidity issues of traders rather than anything wrong with gold itself.
It certainly feels like more of a mechanical correction. Either way, gold’s fumble could be crypto’s gain, especially with Bitcoin (CRYPTO:BTC) holding relatively steady, down just 2.5% and up 5.3%, respectively, in the past week and month. Could this be the sign that Bitcoin really is the “new gold?” I’m not so sure, but let’s just say that argument has improved in recent weeks.
Gold prices falter amid a crisis—what’s next?
The price of gold has a history of holding its own when times get really tough, but after the massive rally that preceded the latest correction, I’d argue that there’s really no reason to shun gold as a lowly-correlated store of wealth. At the end of the day, the U.S. dollar is having its moment, but it might not be all too long before gold is marching higher again on the back of the “debasement trade,” which, I believe, still has legs. In any case, gold (and silver) were long overdue for a correction.
You can’t just have a massive surge without having to pay the price in the form of a correction. Arguably, the latest setback for gold and silver could be better for the gold fans still looking to build their positions. Either way, portfolio gold exposure is still light and with central bank buying likely to stay robust for the long haul, I’d stick with gold. Although I’m sure the latest failure of gold in the face of a crisis in the Middle East is a sign for gold or silver chasers to get back into the new-age form of gold: Bitcoin and the like.
Bitcoin was supposed to react old is acting right now, but it’s actually looking more like gold these days. Of course, one instance of acting like more of a “safe haven” isn’t a conclusive sign that Bitcoin is the new gold. Though I’m sure it might make more sense for gold investors to diversify into Bitcoin after the latest precious metal meltdown.
Should you back up the truck on Bitcoin again?
I wouldn’t make a drastic move just because of a few weeks of trading. That said, if you liquidated your Bitcoin for gold, silver, copper, or any other metal, it might be time to start thinking about diversifying into digital gold.
While I’m not convinced Bitcoin is the new digital gold, I have to admit that it’s acted as such and deserves credit for its relative stability, especially given a past that’s seen the cryptocurrency trade more like a high-multiple growth stock than a risk-off kind of asset.
In any case, Bitcoin wins the title for acting like a risk-off asset this turbulent month. And gold is the risk-on asset. Just how long the changing of the script lasts, though, is anyone’s guess. Either way, you have to give where credit is due. And Bitcoin might actually be worth a closer look as it shows signs of bottoming out while prices are back above the $70,000 mark.
In short, why pick between gold and Bitcoin when you could own both as a part of a diversified portfolio?
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