Bitcoin and gold hit new peaks this week amid global market uncertainty

Neither gold nor bitcoin pay investors any income, although they have more than made up for that with stellar capital growth since October 2023 propelling them to record highs.

The price of gold has surged 123 per cent in two years to more than $US4000 an ounce, but its spectacular rise has been smashed by bitcoin, which is often called “digital gold” and has surged 340 per cent in value in the same period. Bitcoin is currently trading above $US121,000 – in January 2023 it was just $US17,500.

Investment analysts say while both gold and bitcoin could continue climbing in the short term, there remains a chance of a quick double-digit correction, and investors should be careful when diving in at such lofty highs.

Their use as safe haven assets – although bitcoin is much more volatile – has been fuelled further by the latest US government shutdown and Japanese political gyrations, analysts say.

Capital.com senior financial markets analyst Kyle Rodda said while stocks and other assets were also rallying right now, some people were suggesting that gold and bitcoin’s latest surge to record highs was “a signal the markets see doomsday around the corner”.

“The markets are seeking out assets with fixed supply,” he said.

Bitcoin is structured so that only 21 million will ever exist, with 19.9 million produced so far, and Mr Rodda said while gold was still mined, its rising supply was slower than economic growth.

“The supply of money grows at a much faster pace than we can pull gold out of the ground – the increase of gold that we can supply is much less than the demand for it,” he said.

Mr Rodda said factors driving gold and bitcoin higher in the past two years included interest rate cuts, US trade policy and geopolitical uncertainty – particularly wars in the Middle East and Eastern Europe.

“For investors, increasingly both are playing a role in a portfolio, and that should mean that over time money will continue to flow into these assets, pushing them higher,” he said.

However, a short-term pullback was always a risk when market sentiment was so strong, Mr Rodda said.

“The major case for bitcoin in my opinion is acting as digital gold. However, it remains quite strongly correlated to equities and US tech stocks in particular, which suggests that if you’re buying bitcoin you’re buying a more volatile store of value.

“It really depends on risk appetite.”

Catapult Wealth director Tony Catt said gold’s story was interesting, while for bitcoin “it’s a question of do you understand it and can you safely do it”.

“I think gold is an asset class where there is a lot of central bank buying,” he said.

“Will that continue given the global uncertainty? I think the short-term answer is yes.

“But history has a habit of repeating itself. We see volatility in these asset classes all the time, so you have got to be very, very careful walking into what I would say are very hot markets.”

A research note this week by UBS said it was “hard to find anyone who isn’t a gold bull” at the moment, but the drivers that had pushed gold higher still remained.

Separate recent research by Dimensional Fund Advisors questioned gold’s status as a safe haven, noting that since 1980 its investment returns had been positive in just 56 per cent of calendar years, compared with 73 per cent for ASX-listed stocks.

“Gold has been far from immune to drawdowns,” it said.

Bitcoin was also not a reliable way to store value, said Dimensional investment strategist Kristi Higgins.

Her analysis found bitcoin’s volatility had been almost five times higher than shares over the past decade.

“If you want to save something for later, the thing you store it in needs to be reliable,” Ms Higgins said.

Bitcoin’s volatility has not stopped global investment giants stockpiling more of it and other cryptocurrencies this year, with favourable US regulatory changes also underpinning its latest boom.

The chief executive of financial adviser deVere Group, Nigel Green, said “bitcoin is gaining because Washington is failing”, noting that the shutdown of US government institutions was eroding confidence.

“Structural demand for bitcoin is building at the same time that Washington is showing dysfunction,” he said.

“It’s borderless, scarce, and operates outside the same structures that are now paralysed. It’s being recognised as a store of value when the old anchors are under pressure.

“Volatility remains, but so does conviction.”

This article first appeared in The Australian as Bitcoin and gold hit new peaks amid global market uncertainty