Cryptocurrency vs. Gold

Grayscale Capital launched their #DropGold campaign this month, encouraging US investors to ‘drop gold’ as an investment and buy crypto assets instead. The campaign has had a clear impact on the price of cryptocurrency, but should we really stop investing in gold?

Royal Mint Bullion has examined some of the key claims made by Grayscale Capital about investing in Bitcoin in comparison to gold:

 Is gold outdated?

Since the financial crash in 2008, central banks have commenced a gold buying spree to help sure up economies and protect against stock market and currency shocks. The below graph highlights the increasing levels of central bank gold holdings between 2009 – 2018:

In 1999, under the authorisation of Gordon Brown, the UK sold a significant amount of its gold, perceiving the metal to be an outdated asset. However, the graph below reveals that central banks are now changing their stance on this, with gold holdings increasing significantly in recent years:

According to a World Gold Council report this month, purchases by central banks at the beginning of 2019 were at their highest in six years, as countries diversified away from the dollar. China & Russia are amongst the largest purchasers of gold, and the WGC expects this momentum to continue, with central banks predicted to buy between 500 – 600 tonnes this year. Gold is therefore far from outdated.

Is gold inflated?

The graph below highlights the price of gold compared to Bitcoin between 2011 – 2019. We can clearly see that between the two investment options, gold is the store of value and Bitcoin is volatile.

Over thousands of years, gold has proved itself to be the ultimate store of value against other currencies. Bitcoin is yet to be tested.  Furthermore, the supply of gold is limited, reinforcing its store of value. In contrast, in recent years we have seen the launch of an endless supply of other cryptocurrencies.

Is gold overrated?

Gold’s unique qualities make it one of the most desirable metals in the world. It is prized for its rarity, its beauty and durability. It is malleable, ductile, conducts electricity and does not tarnish. Such special qualities make it the perfect choice for a wide range of industries:

  • As an efficient conductor of electricity, gold is used in most electronic devices – the World Gold Council states that a single mobile device contains up to 50 milligrams of gold.
  • Due to it being a non-toxic metal, gold has been used in dentistry for nearly 3,000 years. Today, it is also used in the treatment of arthritis patients.
  • Gold is a vital component for most standard laptops and computers, allowing devices to receive power and communicate with each other.
  • Its malleability allows gold to be beaten into thin sheets of ‘gold leaf’, enabling this precious metal to be displayed on iconic buildings across the world.
  • In space, gold is utilised to reflect radiation and stabilise temperatures – without it, darker coloured parts of a spacecraft would absorb considerable amounts of heat. It is also used on astronauts’ visors to protect their eye sight from the sun.

In today’s world, gold remains a vital asset.

Ultimately, all of the above trends suggest gold is far from irrelevant in this digital age. In fact, the World Gold Council reported this month that the UK market for gold bars and coins is up 58% year on year, which is the highest quarterly figure since 2012. Such reports suggest gold will continue to be positioned as an established financial asset well into the future.