When investors doubt the security of major financial systems or want to simply diversify their portfolios, they turn to alternative investments like gold. However, last winter Bitcoin stole the spotlight, reaching a record high of $19,783.06 on December 17, 2017.[1] The cryptocurrency has since fell by 60 percent, as gold prices have continued to climb and are set to soon reclaim the throne of best defensive asset this year.[2]
Gold Rally
In early April, gold hit two-year highs, trading at around $1,347 an ounce. Unlike Bitcoin, gold has been gradually gaining momentum in the markets, rising in value 28 percent since December 2015. By April 24, the yellow metal broke the resistance level of $1,350, and analysts are predicting gold prices will far surpass $1,370 this year!
Why is gold rallying? Examining what affects gold prices lends some insight to the situation.
Gold Price Factors
Geopolitical Tensions
A slew of problems with other countries has driven investors to the safety of gold in recent months: North Korean missile tests late last summer were followed by U.S. and allied strikes against Syria this spring.[3]
Global and National Economic Problems
Fears of a trade war between the U.S. and China and a recession at home have been accompanied by spikes in gold purchases and prices.
Stock Market Volatility
The year opened with major stock market volatility, leading many experts to predict an imminent correction. By April, the market had its worst second quarter start since the Great Depression, and equities have continued to slide.[4]
Weak Dollar
Along with equities, the dollar has also been retreating, and analysts indicate a dollar crash is not far off.[5]
Inflation and Recession Fears
‘As the Goldilocks market environment draws to a close, investor interest in gold has picked up,’ noted independent research provider TS Lombard recently. This was in reference to the formerly mild economy: not hot enough to cause inflation nor cold enough to trigger the next recession.[6]
These are just a handful of the reasons gold prices have been steadily rising in recent years, proving the precious metal to be a promising investment.
Bitcoin Crash
Since its December peak, Bitcoin has been on a rapid decline in value. Within mere weeks of rocketing above the $19,000 mark, the market recorded a Bitcoin crash of 35 percent. The cryptocurrency proceeded to suffer its worst first quarter ever, with bitcoin prices falling from $13,412.44 on January 1 to $7,266.07 on March 30.[7]
While Bitcoin’s flash-in-the-pan winter performance wowed uninformed investors, the warning signs against this digital currency have been building for years.
Bitcoin Warning Signs
Price Volatility
As the Bitcoin crash noted above illustrates, the cryptocurrency is prone to extreme price volatility. For example, an investor who bought Bitcoin on December 7 at $17,303.46 would have been hit with a 20 percent loss by the 10th—when it fell to $14,013.06. Such unpredictability alone is enough reason to consider Bitcoin a bad investment.
Crime and Scandals
Insider trading; funding crime and murder for hire on the ‘dark web’; and the theft of upwards of $460 million from one exchange are just a few of the scandals plaguing Bitcoin. Those who choose to invest in the cryptocurrency risk losing everything and funding illicit activities.
Bitcoin Bubbles
The value of Bitcoin has yo-yoed since its inception in 2009. Whether driven by bots or, more recently, FOMO, prices for the digital currency never stay in the stratosphere for long. The Bitcoin bubble always bursts!
Given all of the problems with Bitcoin, a defensive asset like gold would be necessary just to protect against this risky digital investment.
Protect Your Assets with Gold
Upon closer examination of the two assets, it’s clear that nothing compares to gold when it comes to protecting one’s portfolio. Gold prices are climbing through, so investors should strike now while there are still buying opportunities.