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Gold hits four-month high following crypto crash

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Gold futures closed higher on Wednesday for the fifth session in a row, hitting a 4-month high. While Bitcoin plummeted and major US stocks declined.

After the cryptocurrency market crashed in mid-May, the price of gold has risen significantly. Last week, gold reached its highest price level since January 8 at $ 1,889. JPMorgan experts have suggested that large institutional investors are dumping Bitcoin (BTC) in favor of gold. They believe that in contrast to the increased volatility of the Bitcoin exchange rate, investors are looking for a refuge in gold.

Inflation has a positive effect on gold quotes

Central bank officials were of the opinion that any acceleration in inflation would only be temporary. According to the minutes of the April Federal Reserve meeting released on Wednesday.

Investors in the gold market fear that the rate of rise in prices will spiral out of control. And this will force the Fed to quickly raise interest rates. In this case, gold quotes will come under pressure, since investments in the precious metal don’t bring interest income.

However, the Fed’s minutes showed that, in the opinion of central bank officials, the inflation rate is far from the target level set by the regulator. Thus, “the Fed will not roll back monetary stimulus measures or allow soaring interest rates, believing that the acceleration of inflation is a temporary phenomenon”.

“History shows that inflation is rarely temporary. And it will take large-scale and long-term efforts to return the rate of price growth to the normal range”, experts say.

In any case, this will have a positive effect on gold quotes. As investors will expect a weakening of the US dollar against the backdrop of accelerating inflation and maintaining low interest rates in the absence of an advanced indication from the Fed on the timing of the normalization of monetary policy.

Cryptocurrencies will not be able to provide long-term stability and reliability of gold

Given the fact that gold prices were higher on Wednesday, while stocks and cryptocurrencies were down. “The question of whether Bitcoin can replace gold, received a direct response from the markets”, said Adrian Ash of BullionVault.

“The precious metal isn’t immune to volatility, but it has never lost half its value in a week”, he said. “Whatever role cryptocurrencies play now or in the future, they cannot replace gold as a diversification tool for those wishing to keep their savings or investors seeking to reduce the risk level of their portfolio of assets”.

“Gold has repeatedly shown growth during the fall of risky assets such as stocks. And now it is in strong demand amid a decline in the stock market and the collapse of cryptocurrencies”, said the expert.

Reduced risk appetite and a weaker dollar provided additional support for gold. The dollar index reached an almost 3-month low yesterday, although on Wednesday the American currency was recovering.

Conclusion

It is too early to say that Bitcoin will finally overthrow gold from the position of the most reliable alternative investment. Despite the tremendous successes of the past year, too many factors can still play on the side of traditionalists who prefer the classic precious metal. Bitcoin is still a highly volatile medium. Growth and collapse of 10% per day is normal for him. Any serious investor will think ten times before daring to bet on such an unstable asset.

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