Costco, the popular wholesale retailer, has been making headlines this week after selling out of gold bars in a matter of hours. This surge in demand for the precious metal comes as no surprise, considering the current economic uncertainty and rising inflation. Many investors are seeking out traditional safe-haven assets like gold to protect their wealth. The big question now is whether gold’s performance will push its price above the $2,050 mark, a level last seen in May.
Over the past year, the price of gold has seen a notable increase of 12%. This rally has been partly driven by the efforts of the Federal Reserve to combat inflation by maintaining higher interest rates. This move has significantly benefited scarce assets like gold. While gold’s performance is commendable, it is important to put it into perspective.
When comparing gold’s returns to other assets, it becomes evident that its gains are relatively modest. For instance, gold’s returns over the past year have roughly matched those of the S&P 500, which saw a 15.4% gain, and WTI oil, which increased by 12%. However, these gains pale in comparison to the staggering 39.5% rise of Bitcoin (BTC). Nevertheless, gold’s lower volatility of only 12% makes it an attractive option for investors looking to manage risk.
One of gold’s strongest selling points is its reliability as a store of value during times of crisis and uncertainty. With a value exceeding $12 trillion, gold is considered the world’s largest tradable asset. Thus, it stands as the primary candidate to benefit from capital inflows whenever investors exit traditional markets like stocks and real estate. This was evident during the height of the COVID-19 pandemic when gold only experienced a minor dip of 2.2% in the 30 days leading up to March 24, 2020.
Central banks have also shown increased interest in gold as a hedge against economic volatility. Recent data from the World Gold Council reveals that central banks have been net buyers of gold for the second consecutive month, with notable purchases by China, Poland, and Turkey. Additionally, Russia plans to bolster its gold reserves by an additional $433 million to protect its economy from the volatility of commodity markets, particularly in the oil and gas industries.
Production figures further underscore gold’s significance. Visual Capitalist estimates that approximately 3,100 tonnes of gold were produced in 2022, with Russia and China accounting for 650 tonnes of this total. The World Gold Council predicts that if gold prices continue to rise, total production could reach a record high of 3,300 tonnes in 2023.
When evaluating gold’s investment potential, the stock-to-flow ratio is a crucial metric to consider. This ratio measures the production of a commodity relative to the total quantity in existence. Gold’s stock-to-flow has remained stable at around 67 for the past 12 years. In contrast, Bitcoin has experienced three scheduled halvings, effectively reducing its issuance and currently boasting a lower stock-to-flow ratio of 59. This suggests that Bitcoin has a lower equivalent inflation rate compared to gold.
Despite Bitcoin’s potential to outperform gold, there are factors to consider. As the U.S. government approaches a potential shutdown due to reaching the debt limit, investors may turn to scarce assets like Bitcoin. Its market capitalization of $500 billion makes it easier for the price to surge even with smaller inflows. Furthermore, central banks may sell their gold holdings to cover expenses, further boosting Bitcoin’s appeal. Despite these possibilities, both gold and Bitcoin are likely to benefit from ongoing economic uncertainty and the Federal Reserve’s monetary policies.
In conclusion, Costco’s rapid sellout of gold bars reflects investors’ continued interest in traditional safe-haven assets like gold. While gold’s performance has been notable, it is important to consider its relatively modest gains compared to other assets like Bitcoin. Gold’s reliability as a store of value during crises, coupled with increased interest from central banks, adds to its appeal. However, Bitcoin’s impressive gains and lower equivalent inflation rate make it an attractive alternative for investors seeking a store of value. Economic uncertainty and monetary policies will play significant roles in determining the future performance of both assets.
Disclaimer: This article is for general informational purposes only and should not be taken as legal or investment advice. The views and opinions expressed in this article are solely those of the author and do not necessarily reflect or represent the views of Cointelegraph.