Gold has defied interest rate rises and record equity markets to rally to its highest level in more than three months, the Financial Times reported this week.
Rising more than 6% since early December to over $1,300/ounce — its highest level, the paper reports, since September 2015.
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Gold is normally considered a safe-haven asset and a store of wealth in times of financial stress and uncertainty. So, why the surge in demand?
Performance of the U.S. Dollar
The U.S. and Europe are both expanding and emerging market growth is set to top 5% this year. One theory is the weakness of the U.S. dollar — as the dollar falls, all commodities priced in the currency become relatively cheaper and therefore more attractive to buyers in other currencies.
The dollar has been the worst performer of the G10 currencies in 2017, falling some 10% over the year. Investors also have expectations of higher inflation in the U.S. due to President Donald Trump’s tax reforms and a rising oil price, which often stokes inflation is seen by some as a risk. But while the dollar is attributed with the majority of the rise in gold, it may not be the whole story.
The New Gold and the Old Gold
Cryptocurrencies like Bitcoin have been on a tear this year. Bitcoin is the new gold, Forbes stated recently — but some investors are suggesting such a meteoric rise does not come without an adjustment if not an outright bursting of the bubble. The smart money may already be quietly moving out of Bitcoin into that old safe haven: gold.
Although gold and Bitcoin have been linked as equivalent or very similar forms of investment, in reality there are stark differences between cryptocurrencies and investments made in gold through banks or financial institutions.
There are no deposit guarantees and no bank regulations to fall back on if something goes wrong with cryptocurrencies. There is also no lender of last resort and, as The Telegraph notes, regulation is almost certain soon.
In addition, there are many competing, almost interchangeable, cryptocurrencies – not just Bitcoin.
There are 1,343 different types currently available, according to coinmarketcap.com, which tracks the sector, making Bitcoin hardly unique.
So while any investors who got into Bitcoin early this year are sitting on potentially fabulous profits, they will only remain fabulous if the price remains at current levels. Some, it seems, may already be taking those profits and getting out.
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To what extent the aforementioned has supported the recent run-up in gold prices is almost impossible to tell, but the cryptocurrency’s near vertical price rise in recent months cannot be wholly unattached to gold’s run-up over recent weeks.