Costo outsells gold bars, but is it a better investment than Bitcoin?
Costco made headlines this week after quickly selling out of gold bars. In times of economic uncertainty and rising inflation, it's no wonder investors are turning to safe-haven assets like gold. The question is whether gold's performance will eventually push the price above $2,050, a level seen in early May.
Over the past 12 months, the price of gold has increased by an impressive 12 percent. The rally was fueled in part by the Federal Reserve keeping interest rates high to fight inflation, a move that benefits scarce assets like gold. While Gold's performance is commendable, it's important to keep the issue in perspective.
Over the same period, gold returns matched the S&P 500, up 15.4% and WTI oil rose 12%. However, these gains pale in comparison to Bitcoin (BTC)'s 39.5% growth. Still, it's worth noting that gold's low volatility of 12 percent makes it an attractive choice for investors looking to manage risk.
Risk-reward conditions favor gold
One of gold's strongest selling points is its reliability as a store of value in times of crisis and uncertainty. At more than $12 trillion, gold is the world's largest asset, making it a prime candidate to benefit from capital gains as investors exit traditional markets such as stocks and real estate.
For example, during the height of the Covid-19 pandemic, gold fell 2.2% in the 30 days to March 24, 2020.
Central banks in China, Poland and Turkey were net buyers of gold for the second consecutive month, with heavy purchases of 55 tonnes, according to data from the World Gold Council.
Bloomberg reports that Russia plans to bolster its gold reserves by $433 million to protect its economy from commodity market volatility, particularly from the oil and gas industry.
Digging deeper into production figures, Visual Capitalist estimates that roughly 3,100 tonnes of gold will be produced by 2022; Of this total, 650 tons are accounted for by Russia and China. The World Gold Council has predicted that total production could peak at 3,300 tonnes in 2023 if gold prices continue to rise.
An important metric to consider when evaluating gold's investment potential is the stock-to-flow ratio, which measures the commodity's yield relative to its total volume.
Related: Bitcoin price stabilizes as S&P 500 drops to 110-day low
Gold stock-to-flow has remained stable at around 67 for the past 12 years. Bitcoin, on the other hand, has experienced 3 planned halvings, effectively reducing liquidity and currently boasting a higher stock-to-flow ratio, indicating that Bitcoin has a lower relative inflation rate compared to the precious metal.
Bitcoin may outperform gold despite low returns.
Bitcoin may outperform gold as the U.S. government nears a shutdown over the debt ceiling, prompting investors to seek alternative assets. Bitcoin's $500 billion market capitalization makes its price jump easily, even though its revenue is very small. Additionally, central banks may be forced to sell their gold holdings to cover their costs, further increasing Bitcoin's appeal.
There may also be new gold discoveries. While gold remains strong in the safe-asset world, Bitcoin's impressive returns and low inflation-adjusted value make it a strong contender for investors looking for alternative storage. Despite this, ongoing economic uncertainty and the Federal Reserve's monetary policies will continue to weigh on both assets.
This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.
