Is Investing in Gold Bars or Bitcoin a Better Choice?

This week, Costco made headlines after it quickly sold out of gold bars. In times of economic instability and rising inflation, it’s understandable that investors are turning to traditional safe-haven assets like gold. The question is if gold’s performance will eventually push its price above the $2,050 level seen in early May.

Gold’s price has seen a 12% increase in the last year. This upsurge was partly due to the Federal Reserve’s attempts to curb inflation by keeping interest rates high, which works in favor of scarce assets like gold. Nevertheless, it’s important to put this into perspective.

During the same period, gold’s returns have been in line with the S&P 500’s 15.4% growth and WTI oil’s 12% increase. However, these gains are insignificant when compared to Bitcoin’s (BTC) 39.5% rally. Still, it’s worth noting that gold’s lower volatility of 12% makes it a desirable option for investors looking to manage risk.

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Risk-reward scenarios favor gold

Gold is renowned for its trustworthiness as a store of value in times of crisis and volatility. The fact that gold is the largest tradable asset, valued at over $12 trillion, makes it the primary beneficiary of capital flows when investors move away from traditional markets like stocks and real estate.

For instance, during the peak of the COVID-19 pandemic, gold only dropped by 2.2% in the 30 days prior to March 24, 2020.

According to the World Gold Council, central banks have been net buyers of gold for two consecutive months, acquiring 55 tons, with notable purchases from China, Poland, and Turkey.

Bloomberg reported that Russia is planning to add an additional $433 million to its gold reserves in order to protect its economy from the volatility of commodity markets, mainly in the oil and gas industries.

When evaluating gold’s investment potential, a crucial factor to consider is its production figures. Visual Capitalist estimates that approximately 3,100 tonnes of gold were produced in 2022, with China and Russia contributing 650 tonnes. The World Gold Council also predicted that if gold prices continue to rise, total production could reach a record high of 3,300 tonnes in 2023.

Another metric to analyze is the stock-to-flow ratio, which measures the production of a commodity relative to the total quantity in existence. Gold’s stock-to-flow has remained steady at around 67 for the past 12 years. In comparison, Bitcoin has undergone three scheduled halvings, reducing its issuance, and currently has a stock-to-flow ratio of 59, indicating a lower equivalent inflation rate than the precious metal.

Bitcoin can outperform gold even with lower inflows

The U.S. government’s approach to a shutdown due to reaching the debt limit could lead investors to search for scarce assets, and Bitcoin’s $500 billion market capitalization makes it easier for its price to rise even if its inflow is much smaller. Furthermore, central banks might be obliged to sell their gold holdings to cover costs, further increasing Bitcoin’s appeal.

The possibility of discovering new gold reserves still exists. Even though gold is still a dependable safe-haven asset, Bitcoin’s impressive gains and lower equivalent inflation rate make it a solid option for investors seeking alternative stores of value. However, the current economic uncertainty and the Federal Reserve’s monetary policies will continue to benefit both gold and crypto assets such as Bitcoin.