Holger Zschaepitz, best selling financial author of “A book on states’ addictiveness to debt” and senior editor at Welt, recently discovered an intriguing relationship between gold and bitcoin: when gold plummets in value, the price of bitcoin surges. Based on this trend, he noted that bitcoin is beginning to be recognized as the new global safe haven asset.
For centuries, gold was the world’s safe haven asset, attracting the likes of high profile investors, traders and companies for its long-term stability and physical characteristics. However, as regulations and policies on cash and gold holdings have tightened over the past few years, the value of gold has gradually declined.
India & China’s Crackdown on Gold
Most recently, the Indian government restricted the importation of gold and began to tax, confiscate and seize the precious metal from its people. On December 12, India’s largest gold importer Axis Bank, suspended bullion dealer accounts, leading to an abrupt surge in gold premiums.
“We have temporarily suspended transactions in a few current accounts as a part of a larger enhanced due diligence exercise being conducted on transactions post-demonetisation,” an Axis Bank representative said in an interview.
More to that, the Central Industrial Security Force (CISF) began to seize gold and cash at 10 airports across various cities in India, seizing 245kg of gold within the four weeks from November 10 to December 8. On the global average market price, 245kg of gold is equivalent to around US$9.1 million.
China, which overtook India to become the world’s largest importer of gold in 2014, has also begun to see significant increase in gold premiums amid restrictions on gold importation. On December 2, China gold premiums reached a 3-year high, as gold was sold in the local market at about $24 an ounce, per Thomson Reuters Data.
“Supply has been limited and so the premiums have held firm,” said metals consultancy GFMS analyst Cameron Alexander.
With China and India, two of the largest gold importers in the world today, restricting the importation of gold and imposing heavy regulations on gold holdings, the global gold market is gradually declining. Meanwhile, as Zschaepitz noted, the bitcoin price is on an upward trend, reaching its highest price since 2014 at most major bitcoin exchanges including Bitstamp.
Bitcoin Overtakes Gold as the Global Safe Haven Asset
On a social media platform, Zschaepitz compared the price trend of gold and bitcoin on one data chart. The pink line on the graph representing bitcoin, notably increases in value as the yellow line on the graph, representing gold, declines in value.
— Holger Zschaepitz (@Schuldensuehner) December 12, 2016
According to BraveNewCoin, a New Zealand-based digital currency data provider, China, the worlds largest gold importer, conducts approximately 96.25% of global bitcoin trade.
Therefore, if the Chinese gold market continues to decline and a small portion of the market allocates their capital to bitcoin, this will likely boost the price of the digital currency.
Two of the main reasons investors and traders are shifting from gold to bitcoin is the high liquidity and transportability of bitcoin. In some countries like India and Venezuela, the government has set up border patrols and airport police groups to disallow or restrict the transportation of assets like gold.
Today for instance, the Venezuelan President Nicolás Maduro closed the border with Colombia to “combat currency smuggling,” as India did with airport police groups to limit gold importation.
If strict regulations and policies on gold continue, the value of bitcoin, a digitized store of value that presents significant advantages over gold in terms of liquidity and transportability, will sustain its upward trend in the long run.
Do you think bitcoin has already overtaken gold as the global safe haven asset?
Let us know in the comments below.
Images courtesy of Carpe Ventures, Minitime