Investors are buying more gold as they fear bitcoin, cryptocurrency dangers.
THE bursting of the bitcoin cryptocurrency bubble is a key reason why gold has risen. The price has jumped by 8 per cent from US$1,235 an ounce to US$1,335 since mid-December.
The key question is whether gold will break out of the relatively flat trading range of around US$1,200 to US$1,350. That band has been in place for most of last year.
Crypto currencies tend to gyrate by 5 to 10 per cent within minutes, so an 8 per cent gold price rise in five weeks, may be regarded as small beer.
But now that investors realise that cryptocurrencies are dangerous two way bets, gold is more popular. High, scary stock prices are another booster for precious metals. Bullion dealer Sharps Pixley says that Bitcoin holders have been exchanging their new found riches for gold. The transactions have been carried out via an intermediary.
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Most analysts gauge gold price strength by examining, flows i.e. supply and demand. They estimate whether jewellery demand is exceeding mine production and scrap. But the huge global gold stocks are the ultimate key to bullion’s performance. If investors and central banks buy more i.e. add to the inventories, the price rises. If the inventories fall, i.e. holders sell, the price declines.
When gold is out of fashion from an investment point of view, jewellery demand and hoarding can underpin prices. Suki Cooper, head of precious metals research at Standard Chartered maintains that jewellery and investment demand was disappointing last year. Only 344,500 ounces of American Eagle and Buffalo coins were sold in in the first eleven months of 2017 – down 70 per cent from the same period the previous year.
The World Gold Council estimates that physical gold demand fell by 12 percent in the first nine months of the year. Investors preferred the stock market, so gold slipped from its September 2017 peak of US$1,359 an ounce. It then slid towards the lower end of the trading range, before rallying from mid December onwards.
The key to price performance will be investor psychology. If the Iranian regime fails to suppress the growing protest movement, gold would follow rising oil prices.
What is your view about the relationship between gold and bitcoin? Comments are below.
(This article was first published in The Business Times, Singapore.)
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