- Gold hit a record high in August, reaching above $2,500 per ounce.
- But Bitcoin is still 20% from it’s all-time high.
- Here’s what’s driving the two assets, according to analysts.
Gold has been hovering near record highs, driven by factors like inflation, geopolitical turmoil, and central bank purchases.
Whatever the reasons, “they nearly all come back to the fact that gold is a stable investment,” Rick Kanda, managing director at the Gold Bullion Company, said in an emailed note to clients.
Proponents of Bitcoin, including BlackRock CEO Larry Fink, tout the cryptocurrency as digital gold.
While gold reached a record in late August, climbing above $2,500 per ounce, the largest cryptocurrency is still 20% off from its highs.
So, what gives?
Bitcoin has had other issues to contend with, including large sell-offs from Germany and creditors of collapsed crypto firms, says analyst Noelle Acheson.
It’s also more sensitive to US political uncertainty, she said.
Below are six factors driving gold — and what it means for Bitcoin.
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Economic uncertainty
Gold’s status as a haven asset means demand typically rises during economic crises and recessions. The devaluation of major currencies as a result has also shored up gold demand.
Normally, Bitcoin would fall into the same boat. However, Bitcoin’s price action is more closely tied to political sentiment than economic uncertainty.
Inflation
The Federal Reserve and other central banks are trying to tackle a surge in global inflation.
“During an inflationary period for the economy, investors often opt for gold over cash due to its stability,” the Gold Bullion Company said.
While gold has historically been seen as a hedge against inflation, Bitcoin’s performance during periods of high inflation has been inconsistent, as seen during the rise in US inflation in 2022.
Diversification
The best investors tend to diversify their portfolios to protect against sharp declines in any one asset.
Gold is viewed as a hedge against economic and political uncertainty, while Bitcoin has often been viewed as a risk-on asset that tracks global liquidity. This difference in perception affects the demand for each asset during times of uncertainty.
Central bank buying
Central banks have been piling into gold, viewing it as a long-term store of value during crises.
On the other hand, at least one central bank, the European Central Bank, has indicated that it is unlikely to buy Bitcoin.
Production
Stagnant production in gold mining contributes to its value due to scarcity, while Bitcoin mining faces challenges with halving events that impact the amount of Bitcoin created by miners. These production dynamics affect the value of each asset differently.
Liam Kelly is a DeFi correspondent at DL News. Reach out at liam@dlnews.com.
