4 Reasons Gold is Starting to Look Attractive as Cryptocurrencies Falter

Commodities / Gold and Silver 2017 Sep 21, 2017 - 08:40 AM GMT

Gold is gradually regaining its shine after cryptocurrencies, particularly Bitcoin entered turbulent waters in the last couple of weeks. 2017 was already shaping up to be the year that gold went into oblivion as an investment and as a safe haven asset. The main reason investors weren't particularly interested in gold at the start of the year was the yellow metal seemed to have underperformed cryptocurrencies which are being marketed as digital gold.

However, after Bitcoin crashed from $4,500 to $3,500 investors are starting to review the fact that the stability of gold is the singular reason the yellow metal has remained valuable since the Middle Ages. This piece provides insights into 4 reasons gold is starting to look attractive now that cryptocurrencies are faltering.

1. Gold has outperformed stocks and stocks are mostly overvalued

The media is not losing any chance to hype the 450% gains in Bitcoin this year; yet, the fact that might be lost on many investors is that gold has mostly outperformed stocks this year. The chart below shows the performance of the gold against the S&P 500, NASDAQ, and Dow Jones Indexes.

The price of gold is currently $1,322.85 an ounce and the yellow metal has gained 15.44% in the year-to-date period to outperform the gains of 13.20% in the Dow Jones Industrials and the 11.96% gains in the S&P 500. Only the NASDAQ Composite Index has outperformed gold with 20.03% gains in the year-to-date period. Yet, market watchers believe that the U.S. stock market is nearing a bubble because market speculation is too concentrated on a very few number of stocks in the NASDAQ.

2. Cryptocurrencies are under increased scrutiny

The second reason gold is becoming attractive is that cryptocurrencies are getting increased scrutiny from government and regulators – and the increased scrutiny is exposing the fundamental flaws in some cryptocurrencies. Last week, China announced that it has banned ICOs from the country and that it is applying stricter regulations on the operations of cryptocurrency exchanges.

The world was still grasping with the ripple effects of China's spat with Bitcoin when one of Wall Street biggest bankers, JPMorgan called Bitcoin a fraud. Nicholas Norton, an analyst at ECN Capital notes that "the fact that the world's second largest economy and some of America's biggest bankers are skeptical of cryptocurrency is bolstering the safe-haven status of the yellow metal.

3. Brexit is far from over

Investors who have exposure to global markets understand how geopolitical uncertainties could slowdown or cripple growth in an investment portfolio. The effects of the shocking Brexit vote in which the UK voted to leave the EU are still fresh in our minds after the Pound Sterling crashed to a 31-year low. Now, the Brexit process is already underway and the gives and takes on the both sides of the table during the negotiation process will continue to be market drivers as news headlines continue to break. Investors with exposure to EU and UK markets will surely be inclined to increase their gold holdings in order to increase the stability of their portfolios.

4. North Korea is wild card

North Korea has proven repeatedly that it is an unrepentant rogue nation as it continues to stoke the flames of tension in Asia. Last week Pyongyang, fired off rockets that flew over Japan before ending in the sea – a tacit show of its ability to take out Seoul or Tokyo if its wishes. President Donald Trump has responded in clear terms that it “the United States has great strength and patience, but if it is forced to defend itself or its allies, we will have no choice but to totally destroy North Korea.”

However, North Korea is not a problem that can be wished away – U.S. China, EU and other stakeholders in the international community know that North Korea must be cut down to size, nobody just seem to know how to do the cutting.

By Boris Dzhingarov

© 2017 Copyright Boris Dzhingarov - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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