Tesla, the world’s highest-valued automotive company, bought around $1.5 billion worth of Bitcoin in January and signalled its intent to start accepting the cryptocurrency as a form of payment.

In a securities filing on Monday, Tesla said it had “updated its investment policy” and was looking to invest in “reserve assets” such as gold, digital currencies o gold exchange-traded funds. The company also said that it had purchased $1.5 billion worth of Bitcoin and could “acquire and hold digital assets from time to time or long-term".

"Moreover, we expect to begin accepting Bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis," Tesla continued.

The news promptly caused the price of Bitcoin to surge 14% to a record high of $43,968 per token.

Tesla’s move into Bitcoin represents a significant milestone in the cryptocurrency’s uptake among businesses. While some financial institutions, including PayPal, have moved to adopt the currency as an accepted form of payment, Tesla is the highest-profile non-financial company to invest heavily in it.

With Tesla’s cash and cash equivalents coming to around $19 billion at the end of 2020, its new Bitcoin investment is also a significant move for the company itself.

The development comes on the back of comments from Tesla CEO Elon Musk, who stated that Bitcoin was “on the verge” of becoming more accepted among investors.

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“I was a little slow on the uptake,” he said in a chat on the social media app Clubhouse, adding that he should have bought into Bitcoin eight years ago.

Musk has also recently become one of the principal drivers behind the dogecoin cryptocurrency, with his “joke” comments about the digital token raising its market value by over 800%.

While many are excited about the industry's growth potential and understand turbulence comes with innovation, others wonder how they can still invest in digital assets with a semblance of stability.

Many herald stablecoins as a solution. Palladium-backed cryptocurrency all have bullion as a reserve asset. They will never fall below the underlying asset price but can eclipse the spot price depending on the coin's popularity and trade volume.

Understanding Crypto Backed by Precious Metals

The idea of virtual currency backed by bullion like gold and silver has been tried numerous times. Arguably the most successful before the advent of cryptocurrencies like Bitcoin was E-Gold, co-founded by Douglas Jackson. The coin proved to be very popular at its peak in the 1990s, with at least 1,000 new accounts made each day. However, authorities cracked down on the coin and mandated Jackson to adhere to a variety of financial regulation rules and standards, turning E-Gold into a shadow of its former self.

An ideal modern-day stablecoin should be able to perform main functions. It should have the capability of acting as a medium of exchange to permit holders to buy and sell goods, function as a saving asset (without loss of value), and be used as a unit of account to compare the cost of goods and services.

Stablecoins backed by precious metals stand out for a few reasons. Cryptos backed by fiat currency, like Tether's USDT, remain the most well-known class of stablecoins. But many are wary of fiat currencies' long-term stability, especially in 2020, as national governments pursue a variety of artificial stimulus to keep economies afloat during the coronavirus.

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The Advantage of Metal as a Reserve Asset

Countless civilisations have treasured precious metals like gold, silver, platinum, and palladium for their utility and beauty. Bullion is recognised and accepted across the world for buying and selling.

While many think precious metals are only valuable as a monetary tool, many have a wide range of industrial and manufacturing uses. Palladium is a vital component in catalytic converters to remove hydrocarbons, carbon monoxide, and other potentially harmful gases from vehicle exhaust emissions. The converter is one of the most expensive parts of a vehicle - often costing up to $1,000 alone.

The vast majority of silver mined in the modern world is a byproduct of manufacturing. The industrial uses of precious metals give them an additional allure of value, making them in the eyes of some a stronger stablecoin base than fiat currencies (or other crypto-collateralised) stablecoins like Basecoin.

Understanding Popular Crypto-Backed Stablecoins

Perth Mint Gold Token (PGMT) is one of the market's most popular crypto-backed stablecoins. While some projects are vague about their bullion reserves, PGMT tokens are backed by gold from the Perth Mint, managed by Australia's government.

The Mint offers the GoldPass app that issues a certification with all issued gold bullion. PGMT holders can simply use the app to confirm their digital assets are backed by a gold reserve. Government-backed gold bullion gives PGMT a large degree of legitimacy and viability in the cryptocurrency world, making the token a popular choice for investors interested in crypto-backed stablecoins.

Another well-known choice for those making their first foray into the cryptocurrency stablecoin world is PAX Gold (PAXG). PAXG coins are backed by one ounce of a London Good Delivery Bar. Like PGMT, PAXG coins are seen as highly legitimate in the precious metal backed-cryptocurrency industry due to their connection with a government entity.

The industrial uses of precious metals give them an additional allure of value, making them in the eyes of some a stronger stablecoin base than fiat currencies (or other crypto-collateralised) stablecoins like Basecoin.

PAX Gold's parent company, Paxos, is a New York State Trust Company and received approval from financial entities in New York to operate. Having to adhere to a wide range of US laws and regulations gives Paxos a degree of credibility in the crypto world - boosting the popularity of its flagship precious metal-backed stablecoin.

What to Watch Out for When Buying Precious Metal-Backed Backed Stablecoins

Investors need to be careful when choosing a precious metal-backed stablecoin to buy. They should carefully study the project's website to confirm they have audited bullion reserves conducted by a legitimate third party.

Investors should confirm the project has a seamless bullion redemption process that is fair and economically viable. Investing in the wrong project can lead to a loss of money and other headaches.

Hamzah Almasyabi, co-founder and CEO of the gold-buying platform Minted, outlines the benefits and drawbacks of adopting an investor trading app.

Some of the best-known investment apps, such as Freetrade, Trading 212, Plum and Moneybox, have reported a strong uptick in customer numbers since the start of March, when the UK Government’s lockdown restrictions were imposed. However, in truth, consumers had become more interested in managing their own finances online well before the pandemic. Some platforms have noticed more interest, particularly from younger online investors, who are attracted by the familiarity and gamified nature of the latest investment platforms across a range of asset classes. Equally, older people or more experienced online investors have been exploring ways to make their money go further, sometimes with a view to bringing forward their retirement.

The convenience and simplicity of many new generation investor trading apps is helping to democratise the world of investor trading. It is allowing people to invest in stocks and shares, or precious metals and other commodities, using their mobile phone, while sitting at their own kitchen table. Of course, there are risks but there are also incredible opportunities for people who want to get involved.

When considering investing online for the first time, it makes sense to try out various platforms before starting to invest actual cash. Some platforms offer newcomers a chance to spend virtual money, just to see how their investments might have fared in the real world. Such ‘try-before-you-buy’ services also allow users to test the app’s functionality and make sure it suits their preferences. However, convenience and user-friendly architecture shouldn’t be the main criteria when deciding where to invest for the first time. It makes sense to download a number of options, try them out and compare the terms and conditions of their offer carefully.

When considering investing online for the first time, it makes sense to try out various platforms before starting to invest actual cash.

In some cases, the precise nature of the investment opportunity may not be clear, particularly to the novice online investor. For example, some platforms may appear to be offering a chance to buy stocks and shares, when in fact they are just giving the investor exposure to any movement in the value of the shares. If the investor wants to own shares, this may not be the right option for them.

In a climate of significant stock market volatility, interest in ‘safe haven’ assets such as gold has increased significantly. While there are fewer gold-buying platforms to choose from, there are still some important differences to be aware of. Gold Exchange Traded Funds (ETFs) are popular with some individuals because they provide an easy way of gaining exposure to any increases in the value of gold, whilst still having easy access to the funds if they are needed. On the other hand, gold investors looking to the longer term may prefer to own a physical asset, which has intrinsic value in countries around the world. Buying physical gold can now be achieved without incurring excessive entry and exit costs, making it possible for people with modest amounts of cash to invest incrementally in this luxury asset for the first time.

Before becoming an online investor, individuals should take a step back and consider their personal and financial objectives, taking into account the amount of money they can afford to invest and their risk appetite. These factors will not only influence their choice of asset class, but the features they look for when considering different investment platforms. If any platforms appear to be downplaying risk, over promising returns, or pushing the investor to spend money within a certain timeframe, they should be treated with caution.

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As long as investors have taken the right steps to prepare themselves and understand the potential risks and rewards, online investing can be an empowering and enjoyable experience. What started as a new habit during the pandemic, could have a positive effect on financial wellbeing.

The price of gold reached a historic high on Wednesday, changing hands at $2,040 per ounce XAU= in early trading. The overnight surge means that the price of gold has now risen by more than 30% since the beginning of the year.

Gold has been boosted throughout 2020 by a combination of a weakening US dollar and mounting investor uncertainty in the health of the economy as the COVID-19 pandemic continues to push countries into recession.

Giles Coghlan, Chief Currency Analyst at HYCM, pointed to this investor uncertainty as a key reason for the surge in gold prices. “We know that investors rally to gold in times of uncertainty,” he explained. “The reason for this is simple – gold is a safe haven asset that is able to maintain, and indeed increase, its value during volatile periods.”

“Investors and wealth managers have been buying up gold due to their concerns over the global economy’s ability to effectively recover from the COVID-19 pandemic. The fact that private banks are encouraging their clients to buy gold as a means of hedging against inflation and currency fluctuations shows that the market is not confident that we have witnessed the end of the coronavirus outbreak.”

Coghlan also advised investors eyeing gold to be aware of the Volatility Index, which provides a 30-day projection of the volatility likely to be experienced by major gold markets. Drops in the VIX are normally followed by a rise in gold prices, and vice versa.

Giles Coghlan, chief currency analyst at HYCM, analyses the surge in gold prices and how the COVID-19 pandemic may continue to influence its fortunes.

In the future, investors and traders will regularly look to 2020 to understand just how different stocks, bonds, currencies, commodities and investment securities react in times of prolonged market volatility. What makes this year stand out from other volatile periods (the 2008 global recession immediately comes to mind) is twofold.

The first has to do with the  COVID-19 pandemic being a health crisis shrouded in uncertainty. We simply do not know when or how the virus will cease to dominate government agendas, business activities and consumer behaviours. As a result, traders and investors cannot predict with any certainty what the coming months, weeks, or even days will bring. This makes managing an investment portfolio particularly difficult, forcing investors to contend with something beyond their control.

The second has to do with the long-term implications of COVID-19 on the global economy. There are concerns that the coronavirus will trigger a reverse in globalisation; for example, new popularity for protectionist policies to safeguard the future of national industries and a contraction in global supply chains. It is too early to tell whether this is likely to be the case, but either way, we must acknowledge the enduring influence COVID-19 will have on businesses, government and investor actions for many years to come.

A critical crossroads

At the moment, we have reached what I consider to be a critical juncture. We have weathered the initial outbreak of cases, and countries are now relaxing social distancing measures as a result. In reaction to this, the financial markets have been posting positive figures. On 20 July, the Euro hit its highest level against the US dollar since March – a consequence of EU leaders negotiating a €750 billion recovery plan. In response to this plan, the Dow Jones Industrial Average rose 1.03% and the S&P 500 regained positive territory for the first time since 8 June.

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While this is welcoming news, such market movements only reveal part of a bigger story. The stock markets may be making gains, but so has the price of gold. What makes this particularly interesting is the fact that investors tend to rally to this so-called safe-haven asset in times of uncertainty. Gold prices are currently trading at over $1,800 per ounce – a major milestone that has not occurred since 2011. What’s more, the gold price has gone up by around 19% in 2020 alone, and commentators are hopeful that gold will surpass $2,000 per ounce by the end of the year – a record breaking achievement.

Such projections have left many investors scratching their heads. Have we really entered a period of market recovery or are we witnessing the calm before the storm –  a second outbreak of cases or significant economic downturn that will send shockwaves across the major indices?

The gold rush is here

Put simply, gold prices are ideally positioned to increase over the coming months. This is not due to an increase in consumer demand for the precious metal, but rather a reflection of investors using gold to hedge against market uncertainty by improving their risk-adjusted returns and also having access to a liquid asset able to hold its value in times of volatility.

It seems reasonable to assume gold will surpass its all-time high of $1,920 recorded in September 2011 in the coming months. This will be a defining movement, and could spur on the buyer demand needed to break the $2,000 per ounce barrier by the end of the year. Of course, such growth will by no means be a straight-line trajectory.

The reality is that the price of gold, like all assets, will be influenced by geopolitical events and the COVID-19 pandemic. However, signs at the moment seem to suggest that underlying market uncertainty is encouraging investors to flock to safe haven assets, with gold featuring at the top of their lists.

The reality is that the price of gold, like all assets, will be influenced by geopolitical events and the COVID-19 pandemic.

When is the right time to buy gold?

For those looking to buy gold, a useful reference tool is the Volatility Index, or VIX. By analysing future risk and investor behaviour, the VIX provides a 30-day projection of the expected volatility likely to be experienced by the major markets – a vital instrument in today’s climate.

Based on performances in the past, a drop in the VIX should be followed by a rise in gold prices. Conversely, a rise in the VIX will normally occur prior to gold prices dropping. That’s why investors looking to buy gold need to watch the performance of the VIX carefully to ensure they enter the market at the right moment.

Overall, investors should not rush to gold simply because it is rising in price. Any trade or investment decision needs to be influenced by a bigger strategy and lead to an ultimate goal. A common mistake is investors acting hastily and making rash decisions, instead of taking a step back and thinking how they can best take advantage of the market while at the same time not losing sight of their ultimate financial objectives. By understanding this simple point, investors and traders will be best positioned to make effective use of future gold price movements.

High Risk Investment Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. For more information please refer to HYCM’s Risk Disclosure.

Asian and London trade saw a jump in the value of silver on Tuesday, with a net gain of more than 8%. Spot silver prices rose as high as $21 per ounce, closing the gap on the Gold/Silver Ratio and regaining the ground lost since February.

Traders use the Gold/Silver Ratio to measure the value of the two precious metals relative to each other, with fluctuations generally ending as one metal catches up with the other or the surging metal returns to its original value. Gold almost always leads the way, but Tuesday’s frenetic market activity showed silver drastically reducing the difference to below 90 – having peaked at 124 in March.

“It’s a typical low liquidity summer market where prices tend to be easier to push, especially when momentum has been established as per the trifecta of support,” Ole Hansen, head of commodity strategy at Saxo Bank A/S told Bloomberg.

Commodities have fared especially well in Q2 this year, as the COVID-19 crisis has brought about seismic shifts in global markets and driven investors to seek havens.

Silver often experiences explosions in value under the right conditions. These typically involve rebounding manufacturing demand and increasingly loose monetary policy, both of which increase silver’s relative attraction as a store of value.

Speaking with the Financial Times, analysts at Citi predicted that both of these factors would drive silver prices higher over the next 6-12 months, potentially hitting $25 an ounce by the middle of 2021.

Fresmillo, a Mexico-based silver producer listed in London, has seen its share price rise by nearly 70% this year, marking it as the best performer in the FTSE 100.

Gold prices reached their highest level in eight years on Wednesday, while market shares saw a dip in investor enthusiasm.

Spot gold XAU= rose by 0.6% to $1,777.53 per ounce. Earlier, it hit its highest going rate since October 2012 at $1,779.06 per ounce.

MCX Gold futures also saw a price increase, and the SPDR Gold Trust announced that its holdings had risen 0.28% to 1,169.25 tonnes on Tuesday. Meanwhile, the pan-European STOXX 600 index fell by 1.6%, indicating a potential three-week low.

Investor concerns can largely be attributed to rising COVID-19 infection rates in some areas of the world, with Latin America’s death toll recently having reached 100,000 and record single-day infection rates being recorded in some US states.

However, broad political concerns have added to anxiety. Reports that the United States is considering placing tariffs on $3.1 billion of exports from western European nations, and that the EU may bar US travellers due to surging COVID-19 case figures, have not aided market positivity.

Neil Wilson, chief market analyst at Markets.com, commented that “Gold is a clear winner from this pandemic,” noting that the commodity was initially sold off in March as investors rushed to acquire cash immediately.

“Since then gold has made substantial progress in tandem with risk assets since the March lows because of central bank action to keep a lid on bond yields. The combination of negative real yields and the prospect of an inflation surge due to massively increased money supply is sending prices higher,” Wilson continued.

A‌ ‌time-tested‌ ‌asset‌ ‌ ‌

Historically,‌ ‌gold‌ ‌has‌ ‌maintained‌ ‌its‌ ‌value‌ ‌over‌ ‌time‌ ‌and‌ ‌built‌ ‌its‌ ‌reputation‌ ‌as‌ ‌a‌ ‌“recession-proof”‌ ‌asset‌ ‌class—largely‌ ‌uncorrelated‌ ‌with‌ ‌traditional‌ ‌market‌ ‌movements‌ ‌and‌ ‌economic‌ ‌fluctuations. ‌

Despite‌ ‌this,‌ ‌in‌ ‌the‌ ‌current‌ ‌period‌ ‌of‌ ‌pandemic,‌ ‌panicked‌ ‌investors‌ ‌are‌ ‌placing‌ ‌bets‌ ‌on‌ ‌cash—the‌ ‌US‌ ‌cash‌ ‌market‌ ‌funds‌ ‌experienced ‌$87.6‌ ‌billion‌ ‌of‌ ‌inflows‌ ‌in‌ ‌seven‌ ‌days‌ ‌while‌ ‌the‌ ‌Bank‌ ‌of‌ ‌America‌ ‌‌reported‌ ‌that‌ ‌investors‌ ‌plowed‌ ‌a‌ ‌total‌ ‌of‌ ‌$136.9‌ ‌billion‌ ‌into‌ ‌cash.‌ ‌It‌ ‌has‌ ‌gotten‌ ‌to‌ ‌the‌ ‌point‌ ‌where‌ ‌some‌ ‌banks‌ ‌were‌ ‌cleaned‌ ‌out‌ ‌of‌ ‌‌$100‌ ‌bills‌ ‌as‌ ‌consumers‌ ‌took‌ ‌out‌ ‌large‌ ‌amounts‌ ‌of‌ ‌cash‌ ‌in‌ ‌a‌ ‌bid‌ ‌to‌ ‌protect‌ ‌them‌ ‌from‌ ‌the‌ ‌ongoing‌ ‌stock‌ ‌market‌ ‌crash. ‌ 

‌While‌ ‌some‌ ‌believe‌ ‌that‌ ‌“cash‌ ‌is‌ ‌king”‌ ‌during‌ ‌a‌ ‌recession,‌ ‌over‌ ‌a‌ ‌longer‌ ‌period‌ ‌of‌ ‌time‌ ‌the‌ ‌nature‌ ‌of‌ ‌gold‌ ‌is‌ ‌more‌ ‌stable‌ ‌than‌ ‌cash.‌ ‌As‌ ‌‌banks‌ ‌are‌ ‌now‌ ‌slashing‌ ‌interest‌ ‌rates‌ ‌to‌ ‌encourage‌ ‌spending‌ ‌and‌ ‌boost‌ ‌the‌ ‌economy,‌ ‌so-called‌ ‌‘idle‌ ‌cash’—is‌ ‌earning‌ ‌less‌ ‌interest.‌ ‌In‌ ‌addition,‌ ‌with‌ ‌inflation,‌ ‌idle‌ ‌cash‌will‌ ‌not‌ ‌generate‌ ‌as‌ ‌much‌ ‌return‌ ‌in‌ ‌the‌ ‌long‌ ‌run‌ ‌as‌ ‌its‌ ‌purchasing‌ ‌power‌ ‌may‌ ‌depreciate‌ ‌over‌ ‌time.‌ ‌

‌This‌ ‌does‌ ‌not‌ ‌apply‌ ‌to‌ ‌physical‌ ‌commodities‌ ‌like‌ ‌gold‌ ‌as‌ ‌it‌ ‌cannot‌ ‌be‌ ‌printed‌ ‌like‌ ‌money‌ ‌and‌ ‌its‌ ‌value‌ ‌is‌ ‌not‌ ‌impacted‌ ‌by‌ ‌a‌ ‌government’s‌ ‌decision‌ ‌to‌ ‌change‌ ‌interest‌ ‌rates‌ ‌or‌ ‌to‌ ‌increase‌ ‌the‌ ‌circulation‌ ‌of‌ ‌a‌ ‌particular‌ ‌currency—making‌ ‌gold‌ ‌a‌ ‌more‌ ‌enticing‌ ‌choice‌ ‌for‌ ‌investors‌ ‌during‌ ‌times‌ ‌of‌ ‌volatility. ‌

‌Even‌ ‌prior‌ ‌to‌ ‌the‌ ‌COVID-19‌ ‌pandemic,‌ ‌gold‌ ‌performed‌ ‌exceptionally‌ ‌in‌ ‌economic‌ ‌volatility‌ ‌with‌ ‌an‌ ‌ approximate‌ ‌‌20%‌ ‌increase‌ ‌in‌ ‌2019‌ ‌alone.‌ ‌This‌ ‌is‌ ‌attributed‌ ‌to‌ ‌decreased‌ ‌investor‌ ‌confidence‌ ‌in‌ ‌traditional‌ ‌markets,‌ ‌stretching‌ ‌from‌ ‌stocks‌ ‌and‌ ‌equities‌ ‌right‌ ‌through‌ ‌to‌ ‌government‌ ‌bonds‌ ‌and‌ ‌investments‌ ‌which‌ ‌mere‌ ‌months‌ ‌ago‌ ‌appeared‌ ‌“safe”.‌ ‌This‌ ‌uncertainty‌ ‌is‌ ‌the‌ ‌result‌ ‌of‌ ‌a‌ ‌series‌ ‌of‌ ‌economic‌ ‌and‌ ‌political‌ ‌volatility‌ ‌which‌ ‌unfolded‌ ‌last‌ ‌year—from‌ ‌Hong‌ ‌Kong’s‌ ‌political‌ ‌situation,‌ ‌confusion‌ ‌around‌ ‌Britain's‌ ‌future‌ ‌within‌ ‌the‌ ‌European‌ ‌Union‌ ‌and‌ ‌Brexit,‌ ‌ as‌ ‌well‌ ‌as‌ ‌unsettled‌ ‌US-Sino‌trade‌ ‌ties,‌ ‌and‌ ‌deteriorating‌ ‌relations‌ ‌between‌ ‌Japan‌ ‌and‌ ‌South‌ ‌Korea. ‌

Historically,‌ ‌gold‌ ‌has‌ ‌maintained‌ ‌its‌ ‌value‌ ‌over‌ ‌time‌ ‌and‌ ‌built‌ ‌its‌ ‌reputation‌ ‌as‌ ‌a‌ ‌“recession-proof”‌ ‌asset‌ ‌class—largely‌ ‌uncorrelated‌ ‌with‌ ‌traditional‌ ‌market‌ ‌movements‌ ‌and‌ ‌economic‌ ‌fluctuations. ‌

Looking‌ ‌beyond‌ ‌2019,‌ ‌historical‌ ‌data‌ ‌has‌ ‌also‌ ‌shown‌ ‌a‌ ‌similar‌ ‌pattern‌ ‌during‌ ‌the‌ ‌2008‌ ‌financial‌ ‌crisis‌ ‌ where‌ ‌gold‌ ‌had‌ ‌a‌ ‌small‌ ‌slip‌ ‌during‌ ‌the‌ ‌initial‌ ‌market‌ ‌turmoil‌ ‌but‌ ‌rebounded‌ ‌and‌ ‌outperformed‌ ‌other‌ ‌assets‌ ‌in‌ ‌the‌ ‌following‌ ‌months.‌ ‌We‌ ‌could‌ ‌very‌ ‌well‌ ‌see‌ ‌the‌ ‌same‌ ‌pattern‌ ‌in‌ ‌2020‌ ‌as‌ ‌gold‌ ‌prices‌ ‌are‌ ‌now‌ ‌stabilising‌ ‌and‌ ‌rising‌ ‌after‌ ‌the‌ ‌Federal‌ ‌Reserve‌ ‌System‌ ‌(FED)‌ ‌‌introducing‌ ‌new‌ ‌liquidity‌ ‌injection‌ ‌facilities‌ ‌and‌ ‌the‌ ‌recent‌ ‌drop‌ ‌in‌ ‌‌interest‌ ‌rates‌.‌ ‌

Surging‌ ‌demand‌ ‌

Betting‌ ‌on‌ ‌gold’s‌ ‌performance‌ ‌as‌ ‌a‌ ‌safe-haven‌ ‌asset,‌ ‌panicked‌ ‌investors‌ ‌around‌ ‌the‌ ‌world‌ ‌are‌ ‌rushing‌ ‌to‌ ‌purchase‌ ‌this‌ ‌shiny‌ ‌metal,‌ ‌causing‌ ‌‌gold‌ ‌dealers‌ ‌to‌ ‌suffer‌ ‌shortages‌ ‌as‌ ‌a‌ ‌result‌ ‌of‌ ‌the‌ ‌surging‌ ‌demand‌ ‌and‌ ‌supply disruptions. Three of the world’s largest gold refineries – who together produce one-third of the world’s gold supply – have recently reopened and will continue to operate at 50% reduced capacity after being suspended for two weeks. It means that the supply for gold is now lower than before – making it more difficult for investors to access this precious metal.

Even before the pandemic, the process of purchasing and owning gold traditionally has proven prohibitive for some individual investors. Gold has traditionally been a negative-yielding instrument where investors have to pay to store, insure, and secure the asset, meaning that the purchasing and holding gold has historically been in the exclusive domain of traditional financial institutions and high-net-worth individuals (HNWIs) who can afford to pay for custodianship.

While there is now an increased demand for gold worldwide, the challenges to acquire this shiny metal have also increased.

Putting gold in the digital realm - a new, better form of gold

 With the surging demand for this precious metal, the gold industry has evolved alongside technological advancements and the mass digitisation of the financial sector. The emergence of digital assets has given gold a new channel to shine in this digital space and has presented investors of every kind with a new way to purchase gold. One way is through “digital gold” - a digital token that is backed by actual gold bullions.

In light of the ongoing outbreak measures, the issues of physical gold are becoming apparent and extending beyond a lack of supply to deeper logistical nightmares - with gold dealers being unable to move gold across borders - or even out of the vault - as gold doesn’t come under essential items, causing delivery delays and gold funds to come to a complete halt. Mobility limitations can be solved by placing gold on the digital realm - allowing anyone with an internet connection to trade gold online without the inconvenience associated with storing, carrying, and moving gold. Digital gold enables gold to be transferred across international borders as easily as sending an online payment or a bank transfer - opening up the gold markets to globalisation and providing investors with greater utility and liquidity by reducing the barriers of entry to the gold market, allowing anyone to trade, spend, hold, and microinvest their savings into the world’s most time-tested asset class.

Even‌ ‌prior‌ ‌to‌ ‌the‌ ‌COVID-19‌ ‌pandemic,‌ ‌gold‌ ‌performed‌ ‌exceptionally‌ ‌in‌ ‌economic‌ ‌volatility‌ ‌with‌ ‌an‌ ‌approximate‌ ‌‌20%‌ ‌increase‌ ‌in‌ ‌2019‌ ‌alone.

However, anything placed in the digital realm opens itself to hacks, and the number of cyber threats has risen by 37% in March 2020 - with the average daily number of hacking and phishing attempts increasing by up to six times than the period before the pandemic. Trust, security, and data management remain a huge concern as there is a chance that sensitive data stored in centralised servers may be altered, misused, or stolen by malicious parties.

One way to combat cyberattacks is through blockchain, as the decentralised and immutable nature of the technology ensures that data remains unalterable and tamper-proof. A decentralised ledger system allows information to remain transparent while also maintaining a high level of data integrity. In essence, the distributed nature of blockchain provides no “hackable” entrance or point of failure that detrimentally exposes entire datasets. By applying this to digital gold, asset holders can maintain full visibility over their assets, transaction history, and even track inventory records while this data remains unalterable and tamper-proof through blockchain technology.

As COVID-19 exposes issues of mobility, convenience and accessibility in the traditional gold market, it opens an opportunity for the market to reinvent and future proof itself for the years to come. Although digital gold remains a new concept for many, it has the potential to not only help the gold industry evolve but also open up new possibilities across the financial ecosystem in a “post-COVID-19 world”.

Shaun Djie, COO & Co-Founder of Digix

Shaun Djie is the Co-founder of DigixGlobal and the Founder of the Ethereum Singapore meetup group. Shaun is currently a Technical Committee Board Member at the IT Standards Committee, organised by IMDA and Enterprise Singapore for Blockchain and Distributed Ledger Technologies, ISO/TC 307. Shaun is also a Regional Partner at Kenetic Capital, an institutional platform for blockchain advisory, technology and investment. He’s the co-author of Cryptocurrency Wizards (2018), a first of its kind book that covers the testimonials of movers and shakers in the Asian cryptocurrency ecosystem.

However, Bitcoin’s role in the wider financial ecosystem could be much larger than gold because of its super-fast transaction speed and its ability to work with cross-border transactions.

Below Finance Monthly has heard from Marie Tatibouet, CMO at Gate.io, who explains that while gold is universally recognized as a low-risk, low-returns but stable asset, Bitcoin is emerging to be a new investment option with great returns in a digital economy.

Gold is widely recognized as a safe-haven asset for being traded as both currency and commodity, and considering its scarcity and stable value, it is a national strategic reserve. Bitcoin, on the other hand, with its $15.7 billion market cap in 2020 and a total supply of 21 million since its launch, has been a hot topic of discussion. According to Bank of America’s securities report, Bitcoin gained 8.9 Million percent over the last decade; an investment of $1 in Bitcoin in 2010 would now be worth more than $90,000. Lately, the blockchain technology applications have gained a lot of popularity, giving Bitcoin an edge over Gold. Moreover, gold is heavy and is subjected to rigid supervision and heavy taxation while Bitcoin can be traded efficiently and flexibly owing to its barrier-free circulation and around-the-clock trading in the digital economy.

An investment of $1 in Bitcoin in 2010 would now be worth more than $90,000.

Gold And Bitcoin As Safe-Haven Options

There is a positive correlation between the price of gold and inflation while the correlation between the price of USDX and other major stock indexes, such as DJI and S&P 500, is negative. During the times of economic recession and political turmoil, gold can be a “safe-haven asset” for investors, considering its price change trends.

According to the “Bloomberg’s 2020 Crypto Outlook” report, there is an increasingly negative correlation between the price of Bitcoin and the US dollar. It also shows the greatest-for-longest Bitcoin-to-dollar negative 52-week correlation since 2010. This measure of the relationship of alternative currency to the dollar is about the same as for gold.

Inflation indicates the purchasing power of a currency. Federal Reserve policymakers target an inflation rate of 2%, which is an antidote to fiscal turbulence, triggered by extreme inflation or deflation. Most economists point out that greater economic development can be achieved with a mild stimulus given an inflation rate between 2% to 3%. Conclusively, with a lower inflation rate than gold, Bitcoin could be more suitable for being a safe-haven asset.

Price Trends of Bitcoin And Gold During Extreme Events

If we analyze the price fluctuation of Bitcoin and gold in the long-term and short-term, there has been a significant price change trend during extreme events.

A Decade-long Trend

Price Trends of Bitcoin and Gold / Data Source: Investing

From the long-term price trend, the price of gold is far more stable than Bitcoin during the past ten years, but ROI (return on investment) is the opposite. Gold has a distinct characteristic of being a safe-haven asset, and Bitcoin has had a soaring ROI since 2017, accompanied by a high risk. With an escalating China-US trade war, both countries declared imposing tariffs on each other on August 2, 2019. The below graph shows the price changes of Bitcoin and gold one week before and after the event.

Price Contrast of Bitcoin and Gold during China-US trade war / Data Source: TradingView

Sentiments Of Investors During Extreme Events

The sentiment index of gold is steady without huge fluctuations as compared to the Bitcoin. However, if a major event strikes the economy, the sentiment index of Bitcoin is more likely to see a significant surge than gold. As a result, people are more likely to buy Bitcoin as a safe-haven asset to confront the national breaking events. However, as an asset for value preservation, the sentiment index of Bitcoin is less stable than gold’s, owing to an unclear attitude of various countries towards Bitcoin.

Conclusion

Bitcoin, with its flexibility of free barriers and around-the-clock trading, is more sensitive towards bad events than gold. Even though gold is steadier than Bitcoin during market fluctuation and extreme events, Bitcoin is more effective in the short term when it comes to hedging, especially against the turbulent markets.

Markets and stocks in Europe were hit hard over the weekend, and though there has been some rebound, the spread of the coronavirus outbreak is seriously affecting markets worldwide. 12 Italian towns were locked down over the weekend, following over 150 cases and four deaths. As a result, the pan-European STOXX 600 index and  Italy’s FTSE MIB Index were down 3.3% and 4.3% respectively.

“Italy’s lockdown, as the country tries to control the worst outbreak of the virus in Europe, has caused investors to panic about how business and society will be affected,” Russ Mould, investment director at AJ Bell, told Yahoo Finance.

“There has been so much complacency in recent weeks from investors, despite clear signs that China’s economy is facing a large hit and that supply chains around the world were being disrupted,” he added.

On the other hand, gold has seen a strikingly opposite effect, as the value of gold has now reached a seven-year high in the wake of the coronavirus outbreak. It’s clear that although some investors have been complacent in protecting their investments, some have resorted to storing their money in gold, a safe investment space.

According to recent figures, gold prices climbed around 2% this week, up to levels not seen since February 2013. Prices are now fluctuating as high as $1,678.58 an ounce.

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On the topic of complacency, the deVere Group’s CEO, Nigel Green has warned: “Many investors remain complacent about the far-reaching impact of coronavirus, which is continuing to spread – and at a faster pace. This will inevitably hit financial markets and investors’ complacency leaves many wide open to nasty surprises.”

“Against this backdrop and with the ongoing uncertainty over the direction of stocks and other risk assets, multi-asset portfolios might be favoured by global investors, given that they offer diversification of risk as well as of return.”

Cryptocurrencies are often compared to gold. They have a number of features in common – independence from governments, limited emission, and a user consensus ascribing value to them. This is especially true in the case of bitcoin, the first cryptocurrency that still retains the status of the “default crypto”, just like gold retains the status of the most important precious metal.

However, cryptocurrencies are also vastly different from metals: they are a lot easier to trade. Below Victor Argonov, Analyst at EXANTE, explains more for Finance Monthly.

Physical gold is extremely difficult to buy, sell, and trade across national borders, and nearly impossible to use as legal tender. Gold turnover is subject to heavy taxation, and many prefer to invest in precious metal accounts instead of physical gold. Cryptocurrencies, on the other hand, are easy to buy and sell, can be freely traded across borders, and their use as legal tender is becoming increasingly more common.

These similarities and differences between cryptocurrencies and precious metals are common knowledge. However, one crucial question remains unanswered – how much they are able to function as a protective asset, retaining their value during crises.

Theoretical Considerations

Currently, one of the key arguments against the use of cryptocurrencies as protective assets is their high volatility. BTC cost $0.1 in 2010, $1,000 in late 2013, $200 in late 2014, $19,000 in late 2017, and around $7,000 today. Even just in 2019, which can hardly be called a particularly volatile year, its exchange rate still fluctuated by a factor of four over the year. Crashes are commonplace on the market, and no matter when you buy cryptocurrency, there is no guarantee that your capital is not going to halve in a month.

On the other hand, the key argument for keeping one's funds in cryptocurrency is its tendency to grow in value as the number of its users increases. Cryptocurrency emission is limited by algorithms. With BTC specifically it is actually decreasing, which minimizes inflation. Currently a few dozen million people on Earth use cryptocurrencies, and their number doubles every year. Even 2018, disastrous as the year was, saw the number of users increase from 18 to 35 million. At the same time, the potential new audience is still huge, and in tandem with guaranteed low inflation it usually stimulates growing exchange rates, regardless of the bubbles that may occur.

The key argument for keeping one's funds in cryptocurrency is its tendency to grow in value as the number of its users increases. Cryptocurrency emission is limited by algorithms. With BTC specifically it is actually decreasing, which minimizes inflation.

The increasing number of crypto users not only boosts the cryptocurrencies' exchange rates and capitalization, but gradually decreases their volatility as well. Here is a rough comparison, which nonetheless illustrates the situation. Over the four years between 2010 and 2013 the BTC exchange rate changed by four orders of magnitude, while in the next four, including the dip in 2014 and the enormous bubble in 2017, it only changed by two orders of magnitude. It is true that even the modest fluctuations in 2019 are huge compared to the traditional stock and currency markets, but this is a predictable consequence of the low market cap, which is currently at around $200B. Even when taken individually, the world's largest companies like Facebook or Saudi Aramco have market caps several times that amount, while those of the global stock and currency markets have several orders of magnitude that market cap. So the current volatility of the cryptocurrencies may simply be a sign that they are still in their infancy.

Practical Evidence

There are many known cases of cryptocurrencies serving as a protective asset, primarily during national currency crises. In 2018 the national currencies of Turkey, Argentina, and Venezuela experienced drastic devaluation. While previously citizens of these countries tried to buy dollars in similar situations, this time many people turned to cryptocurrencies. As an example, in August 2018 the number of cryptocurrency users in Turkey was double the average number for Europe.

The cryptocurrencies' protection against fiat currencies' devaluation is not limited to unstable countries with only a small share on the global market. For example, statistics show that the BTC exchange rate usually increases as the Chinese yuan's rate drops.

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However, none of these examples make cryptocurrency unique. When one country's fiat currency devalues, any other country's fiat currency may serve as a protective asset if it is more stable. What makes gold unique is that its role as a protective asset is universal. Not only does it protect its owners from national currency devaluation, but from stock market crashes as well. Gold exchange rate is not particularly stable and has its own fluctuations, but it is fairly independent of stock index fluctuations. Does cryptocurrency have the same advantage? As practice shows, no.

From 2014 to 2017 BTC's exchange rate usually changed in the same direction as the indices, and often with much greater amplitude. In the fall of 2018 it briefly looked like the situation was changing. The 2017 bubble had already deflated, and the volatility of the digital assets dropped by several orders of magnitude (as it usually happens after bubbles). When American stocks started dropping in price due to the trade war with China, BTC did not follow the market's lead and had indeed served as a protective asset.

However, it was unable to cement that role. November already saw a new cryptocurrency crash that was followed by the infamous crypto winter. Whether it was chance or an expected event, it roughly coincided with the maximum dip in the stock market. The indices recovered due to the negotiations between the US and China in the spring of 2019, and so did the cryptocurrencies.

Very Risky, But Still A Protective Asset?

Overall, the properties of gold and cryptocurrencies as protective assets are very different. If you are afraid of your national currency experiencing inflation, cryptocurrency can protect your capital, but if you are a stock investor, expect cryptos to dip during a crisis as well. The reason for this is simple: despite their advantages, cryptocurrencies are still considered a very risky asset compared to securities and gold. They are exactly the assets the investors try to get rid of as soon as possible during difficult times.

Despite their advantages, cryptocurrencies are still considered a very risky asset compared to securities and gold. They are exactly the assets the investors try to get rid of as soon as possible during difficult times.

On the other hand, in the long term cryptocurrencies are still a protective asset. If you are not afraid of long exchange rate dips and are not prone to dumping all your assets during crashes, you will probably be rewarded over the years. While cryptocurrency growth on the scale of 2010-2013 is unlikely, their exchange rates are still expected to multiply in the next few years. To date, every bubble on the crypto market resulted in a substantial growth of the exchange rates. For example, the BTC rate of $3,000-4,000 during the crypto winter of 2018-2019 was vastly higher than in any year before the 2017 bubble.

The only thing that can seriously undermine the global positive trend of the cryptocurrencies is a complete ban on them by leading countries. However, this seems unlikely. With every year, more and more influential financial communities join the cryptocurrency market, and they would not want to leave it.

The increasing popularity of cryptocurrencies will eventually slow down their upward trend, but is also likely to greatly decrease their volatility and make them more similar to traditional protective assets like gold. How close that similarity would be is, as yet, unknown.

Gold now moves at its highest price since almost seven years ago, while global equities slid among recent political tension involving Iran and the US. The price of Gold shot up as much as 2.3% this week to $1,580 a troy ounce, its highest level since April 2013.

This subsequently boosted shares for manufacturing firms, as Newmont Goldcorp scaled 1.1% and Polyus International advanced 2.3%.

Natasha Kaneva, commodities analyst at JPMorgan, said: “Markets tend to overreact to geopolitics when trading is thin, as it has been during the post-holiday period, but investors are right to fret about what is happening in the Middle East.”

Aditya Pethe, director of Waman Hari Pethe, also remarked however that: “Demand could slow down because of the sudden jump in price, but once it stabilises, people will resume buying.”

Goldman analysts currently believe that Gold may in fact be a better bet than oil at the moment, but it all depends on what happens next in regard to the political situation between Iran and the US.