Gold
That precious metal that captures the imagination
Celebrities love it
Investors buy and sell lots of it
And governments often store it
Now this of course, is what Fort Knox is all about
From gold rushes...
All you need is a pick, a shovel and a pan
...to Hollywood icons and dynasties
This shiny metal is essential to the global economy
It remains the main store of value around the world today
In much the same way as it has done for millennia
We’re rich!
And it’s been the go to investment for central banks...
...governments and investors...
...during times of economic uncertainty
If markets perhaps get a bit nervous and start falling
Traditionally, gold would be seen as a safe haven for money
Gold is seen as a hedge against inflation...
...because of its finite supply...
...because of its scarcity
It doesn’t tend to move as much
Gold hit an all time high in August 2020...
...as investors looked for secure commodity...
...during the first six months of the pandemic
But since then, despite rising inflation...
...gold’s price has underperformed
At the same time, investments in another asset have soared
This is bitcoin’s performance during the same period
I think we could be on the edge...
...of a very big bitcoin breakout
Our view is that it’ll be going up forever
Bitcoin is going up
Gold is still a much bigger market than bitcoin
But many analysts and investors...
...are talking about an inflation hedge battle...
...between the two assets
Bitcoin, I think has...
...effectively replaced gold
So could bitcoin ever challenge gold...
...as the world's leading asset class?
Gold has always been the king of currency markets
In the early part of the 20th century...
...most countries pegged the value of their currencies...
...to the price of gold
This was called the gold standard
During the Great Depression...
...many Americans hoarded gold as banks collapsed
In response, President Roosevelt took the US...
...off the gold standard
Ordering Americans to exchange their gold for dollars
The United States must take firmly in its own hands...
...the control of the gold value of our dollar
Failure to comply meant jail time
All right,
We've learned at last...
...to manage a modern economy...
...to ensure its continued growth
Fast forward almost 40 years...
...and President Nixon facing rising inflation and pressure...
...from foreign governments...
who want to exchange their dollars for gold...
...severed the final link between the dollar and the rare metal
People have got to know whether or not...
...their president’s a crook...
...well, I’m not a crook
Taking away the gold standard...
...effectively created currency markets...
...as we have them today
Suddenly, we had all these...
...these free floating currencies
Gold has historically performed well when inflation rises
Take the late 1970’s, as the US rate of inflation soared...
...so to did gold
In 1979 alone, the price of gold tripled
Gold has also tended to perform well during economic slumps
between 2007 and 2011...
...when the global economy was reeling...
...from the effects of the Great Recession...
...it’s price tripled
Central banks put interest rates down to the floor...
...what printing money left, right and center...
...the US dollar was under some pressure...
...and again, what investors saw was perhaps...
...a more tangible asset, a safe place for their money
Then we saw gold again have this massive run up into 2011
It struck gold on the Titus farm here...
...not many miles from Cincinnati
Gold is valuable because it acts as a store of value...
...and like currency is a recognised medium of exchange
It’s rare, but not so rare...
...that it can’t be mined on an industrial scale
Gold is a finite product...
...there is only so much of it in the ground...
...and that which isn't in the ground, a fifth of the gold...
...never mined is held by the world’s central banks
So as a physical asset...
...there's not that much of it to be traded
That means it’s more or less inflation proof
Governments market orientated ones at least...
...can't control how much of it is mined...
...and sold on the market
But that doesn’t mean...
...they can’t influence its price altogether
If central banks raise rates to combat inflation...
...you’d expect probably the US dollar to rise as well...
...which would put pressure on gold
If interest rates are higher and perhaps more attractive...
...to investors from a cash point of view...
...that’s another thing that could suck money away from gold
Like gold, bitcoin should, in theory...
...be more stable than fiat currency...
...this is because it has a limited supply
Only 21 million bitcoins can ever be mined
Bitcoin, however, is far more volatile as an asset than gold
Roughly every four years, the number of bitcoins...
...released into circulation halved...
...limiting the supply of the digital currency...
...which makes it more scarce...
...and should increase its value
The final halvening will occur in 2140
After that, no more bitcoins will enter circulation
Bitcoin is a scarce asset...
...In the next five to ten years I would see...
...bitcoin replacing gold...
...as a store of value...
...as a hedge against volatility or inflation
And it’s something that doesn’t stay static...
...that continues to evolve
Despite the similarities between gold and bitcoin as assets...
...their prices tell us a different story
30 years ago...
...gold prices were almost level with the S&P 500...
...an index comprised of the top 500 companies in the US
At the dawn of the 21st century...
...the gap between gold and stocks widened
And even though the price of gold and equities...
...have matched each other at various points...
...since the mid 2010s gold’s price...
...has fallen behind the index
During the same period...
...bitcoin's growth has been explosive
Now for the first time as inflation starts to rise...
...gold has a direct rival, the young challenger...
...bitcoin
We’re seeing a stronger US dollar...
...that is going to put some pressure on gold...
...and we’re not going to see it have the same sort of gains...
...it would have if the US dollar was weaker
Though interest in gold has lagged...
...over the past ten years
Bitcoin has attracted growing interest...
...in three crucial areas
In these two hours, it went from $17.50
People were buying bitcoin at one penny
For the first decade of bitcoin’s life...
...its price was largely driven by retail investors
And a majority of those retail investors ...
...have tended to be young
A recent survey found that younger investors aged 18 to 34...
...were more likely to invest in cryptocurrencies...
...than 35 to 64 year olds
The older cohort still favoured gold
This trend quite clearly demonstrates...
...that older investors are more careful, more prudent...
...they would rely on a trusted asset such as gold
whereas the younger people...
...are more interested in the potential for growth in bitcoin...
...and its potential as a currency of the future
Since 2018, the trading volume of gold...
...the red Line has remained constant...
...but the buzz around bitcoin, has seen a surge...
...in the number of people trading it
Recent weeks, however, have hinted at a tentative gold rally...
...as new inflation figures were released in the US
There's been a big few days in the gold market
Finally, we've seen some lift off in gold
And we're going to finally see a breakout sometime soon
Bitcoin, however, is provoking hysteria...
...among retail investors...
Bitcoin has had an amazing 24 hours
And let's start about the bitcoin price...
...this is something for the history books
...which prompted a record high price in early November
But bitcoin evangelists think it could go much higher...
...because of this
It’s official ProShares will be the first out...
...with the bitcoin futures ETF...
...will begin trading Tuesday under the symbol BITO
In October...
...the Securities and Exchange Commission...
...which regulates market practice in the US...
...allowed people to trade bitcoin...
...through an exchange traded fund...
...on the New York stock exchange
This enables Americans for the very first time...
...to invest in bitcoin through pensions...
...and other investment portfolios...
...without having to go through...
...separate crypto exchanges
The introduction of new exposures to this market...
such as exchange traded funds
Means that the market is growing...
...and more and more people can gain exposure to it
The regulators are beginning to think about...
...how they can gather this industry under its wing...
...and start to regulate it properly
Then there are big public companies
They too, are showing significant interest...
...in the original cryptocurrency
These are the ten public companies...
...with the largest bitcoin holdings
Three of them are bitcoin mining companies
The top three however...
...hold amounts which dwarf the others
We have the likes of MicroStrategy...
...who bought more bitcoin and continue to add...
...the amount that they store on their balance sheet
And I think we’re very likely to see...
...some very well-known companies...
...come out in their earnings reports...
...and state that they’re now holding bitcoin...
...in the run up to christmas and after christmas
But there’s another investment sector...
...which could have by far the biggest inflence...
...over the growth of bitcoin
Institutional investors, like big banks...
...investment companies and hedge funds...
...are radically changing their views towards bitcoin
Only a few years ago this is what the CEO of...
...JP Morgan had to say...
...about the original cryptocurrency
I could care less what bitcoin trades for...
...how it trades, why it trades, who trades it...
...If you’re stupid enough to buy...
...you’ll pay the price for it one day
But as a hedge against inflation...
...the bank recently made it possible...
...for its clients to invest in bitcoin
Until the pandemic hit...
...investment in cryptocurrencies as a whole...
...was still dominated by retail investors
But since the start of 2021, the opposite has happened
Non-retail investments made by the likes of...
...big banks and public companies...
...now account for a large majority of overall investment...
...in cryptocurrencies
And bitcoin is still by far the largest of all the cryptocurrencies
If you look at the US jefferies, the asset manager...
...reallocated 5% or so of its portfolio from gold to bitcoin
And if we look at the outflows from ETFs...
...on places like gold.org...
...there's the outflows from the gold ETFs...
...which are fairly significant
There’s net inflows into the big...
...bitcoin and cryptocurrency trust...
...the Grayscale trust, the CoinShares trust
So my view is yes, bitcoin is taking a share of gold as we speak
Banks too, are building up substantial holdings...
...of cryptocurrencies
And in a survey of almost 800...
institutional investors across the US and Europe...
...more than one third of respondents...
...said they currently held investments in digital assets
A quarter of those were in bitcoin
Some of the polling suggests...
...that institutional investors are in and interest is rising
We will see over the next 12 months...
...with more institutional investors getting involved...
...and reallocating percentages of their portfolio...
...from gold into bitcoin
Central banks, which hold large reserves of gold...
...are however lukewarm when it comes to bitcoin
Crypto assets...
...you know, they’re they're highly volatile
See bitcoin...
...and therefore not really useful as a store of value...
...and they’re not backed by anything
In September 2021...
...China banned bitcoin, citing its energy use...
but more likely because it’s decentralised...
...and can’t be controlled by governments
About 60 to 70% of all bitcoins miners were in China
Institutions and central banks have got to the point...
...where they can’t ignore bitcoin anymore
We’ve seen many moves over the last six months...
...from central banks to introduce their own digital currencies
These are in direct response to the threat...
...to sovereignty of their own currencies
And so they’re having to take it seriously
Bitcoin has become more mature now...
I think that’s something that we’ve seen definitely over...
...the last 12 months
where we’d have people looking at gold as an alternative...
...to stocks
There’s suddenly a lot more alternatives out there...
...and I think that’s one of the reasons that gold...
...has been neglected and unloved over the last 12 months
Bitcoin's increased value, however...
Bitcoin
...suggests it’s cementing its position...
...as a reliable asset in the public consciousness
Discounted by governments and central banks...
...for more than a decade
It’s likely to remain as a form of digital gold...
...for many investors in the years to come
I’m David Jones, chief market strategist at capital.com
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