Gold closed at US$2,411.23 per ounce on Friday (12 July) and rose to US$2,433.32 on Monday (15 July), while bitcoin also increased, reaching a two-week high of US$62,698.
The comparison between gold and bitcoin has gained prominence this year, with Benjamin Celermajer, director at Magnet Capital, recently describing bitcoin as digital gold.
On the other hand, despite both enjoying growth in the face of increased volatility, Global X senior investment strategist David Tuckwell dismissed the notion of competition between gold and bitcoin as “categorically false”.
Similarly, Robin Tsui, APAC gold strategist at SSGA, emphasised that bitcoin has not historically served as a hedge against equity market risk, unlike gold. He highlighted this distinction, stating on an upcoming episode of the Relative Return podcast, “we’re not comparing apples to apples”.
“We don’t mind investors having some bitcoin, but we don’t recommend replacing gold entirely with bitcoin,” he said.
“So in terms of diversification, you can have both assets. But there are some key differences between gold and bitcoin.”
Starting with their similarities, Tsui said both gold and bitcoin are independent from the government, not tied to monetary policies, cannot be printed, and must be monitored.
“So that’s why bitcoin in the past has been branded the new gold. But the differences come from the fact the underlying demand is quite different,” he explained.
“Bitcoin, you can say 100 per cent investment, maybe speculative investment. But gold investment is driven by both cyclical and counter cycle drivers, including investment. The jewellery sector is important, industrial as well. It consumes gold as well.”
Moreover, gold is the clear winner when it comes to protection against equity market risk.
“When we look at every time in the last 30 years, S&P 500 had a drawdown of 10 per cent, gold returned a 5 per cent positive return. Bitcoin on average was -37 per cent, so if you look at the past 15 years since inception of bitcoin, it has not provided that hedge.
“It will be interesting to see the next time when the market corrects how bitcoin will behave because obviously it’s been adopted by more institutional because of the bitcoin ETFs being launched globally. But we are kind of observing how that bitcoin prices will behave when the market does correct.”
But the governments’ reluctance towards bitcoin will remain the key fundamental difference between gold and bitcoin.
Tsui explained that central banks have driven much of the growth in gold due to their preference for the asset’s liquidity.
“If you look at last year’s data, gold trades nine times more in terms of liquidity. This is one of the reasons why central banks like gold, because the liquidity is extremely high on a daily basis,” he said.
To hear more from Tsui, tune in to the Relative Return podcast from this Thursday.
Maja Garaca Djurdjevic
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
