Costco’s rapid sale of gold bars has drawn attention, reflecting a growing investor interest in traditional safe-haven assets like gold. But is gold a better investment than Bitcoin in today’s economic landscape?
Gold has experienced a remarkable 12% price surge in the past year, partly driven by the Federal Reserve’s efforts to combat inflation through higher interest rates. The key question is whether this surge will push gold’s price above the $2,050 mark, last seen in May.
Gold (yellow) vs. Bitcoin (orange), S&P 500 (green) and WTI oil (black), last 12 months. Source: TradingView
While gold’s performance is notable, it’s crucial to contextualize it. Over the same period, gold’s returns have roughly matched those of the S&P 500 (15.4% gain) and WTI oil (12% increase). In contrast, Bitcoin has seen an impressive 39.5% rise, highlighting its significant potential.
Risk-Reward Scenario Favoring Gold
Gold’s reliability as a store of value during crises and uncertainty is one of its strongest attributes. With a market value of over $12 trillion, gold is a prime candidate for capital inflows when investors exit traditional markets, such as stocks and real estate.
Gold (yellow) vs. Bitcoin (orange), S&P 500 (green) and WTI oil (black), Feb/Mar 2020. Source: TradingView
Central banks, including China, Poland, Turkey, and Russia, have been net buyers of gold, with Russia planning to bolster its reserves by $433 million. This interest reflects the desire to shield economies from commodity market volatility, particularly in the oil and gas sectors.
Gold Production and Stock-to-Flow Ratio
In 2022, approximately 3,100 tonnes of gold were produced, with Russia and China contributing significantly. The World Gold Council predicts record-high production of 3,300 tonnes in 2023 if prices continue to rise. Gold’s stock-to-flow ratio, a crucial metric, has remained stable at around 67 for 12 years, indicating its relative scarcity.
200 years of gold production. Source: Visual Capitalist
Bitcoin’s performance could surpass gold’s, particularly during events like a U.S. government shutdown due to the debt limit. Bitcoin’s $500 billion market capitalization allows for significant price jumps, even with lower inflows. Additionally, central banks selling gold holdings to cover expenses could boost Bitcoin’s appeal.
While gold remains a stalwart safe-haven asset, Bitcoin’s remarkable gains and lower equivalent inflation rate position it as a strong contender for investors seeking alternative stores of value. Economic uncertainty and Federal Reserve policies continue to support both assets, making the choice between them a matter of individual investment strategy.
