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The gold market is holding firm in relatively neutral territory, trading in a narrow range between $1,800 and $1,850 an ounce; however, some commodity analysts are optimistic that gold could see renewed investors' interest as sentiment in financial markets rapidly disintegrates.
Specifically, some analysts see gold finding new safe-haven demand as investors flee the cryptocurrency market.
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In 2021, Bitcoin's rally to an all-time high of $65,000 an ounce took away some of gold's luster. Last year some analysts said that Bitcoin's rally reduced gold's market valuation by as much as $200. Many investors saw Bitcoin and other digital currencies as a better store of value than gold. However, sentiment is quickly shifting as Bitcoin dropped below $18,000 a token and Ethereum dropped below $900.
"I would argue this blow-up in cryptos reinforces the value of gold," said Kristina Hooper, Chief Investment Strategist at Invesco, in a recent interview with Kitco News, "There's really only one asset that historically has the qualities of being a hedge against inflation and geopolitical risk and it's not cryptos."
Many analysts have noted that cryptocurrencies have fallen in line with risk assets like equities as the Federal Reserve continues to aggressively tighten its monetary policy to slow the economy and cool down extraordinary inflation pressures.
Rising interest rates coupled with the plan to reduce its balance sheet have reduced the amount of liquidity in the marketplace impacting riskier assets. Bitcoin is down more than 70% from its 2021 all-time highs. Year-to-date, the digital currency is down more than 50%, even as prices bounce from Saturday's multi-year low.
But it's more than just bitcoin; few financial assets are doing well in the current environment. So far this year, the S&P 500 is in solid bear-market territory, down 23%. Even the traditional safe-haven U.S. bonds are down on the year. The yield on a 10-year note is trading well above 3% and are up more than 100% since January.
Gold hasn't lost its luster even as the Fed continues to raise rates - State Street's George Milling-Stanley
Robert Minter, Director of ETF Investment Strategy at abrdn, said that in the current environment, as interest rates and inflation rise, investors should look to have solid assets in their portfolios. While gold should always be part of a balanced portfolio, Minter said that he also likes base metals as they are even a better hedge against inflation.
"Bottom line is you want something real in your portfolio. You want something that if you drop it on your foot, it is going to hurt," he said.
George Milling-Stanley, Chief Gold Market Strategist at State Street Global Advisors, said that the selloff in Bitcoin proves it's just another risk asset.
"Gold is starting to look more and more, the last outlier. I expect gold to hold its value," he said. "There is a very good chance that as other assets fall, gold relative performance is going to look even better."
By Neils Christensen
For Kitco News
