In the first weeks of 2025, gold hit a new all-time high, approaching $2,950 per troy ounce. It had been preparing for such a breakthrough the entire previous year: the price grew gradually and did not attract the attention of the media, which focused on Bitcoin, which is trying to take the place of the precious metal in investment portfolios.
Oleg Cash Coin has figured out what is causing the growth of physical gold and whether digital gold can compete with it.
"Quiet Harbor" in Minimal Proportions
The year 2025 began with a sharp rise in gold prices, which outpaced almost all asset classes, adding more than 10%. One of the reasons for its rise in price can be called aggressive purchases of the precious metal throughout 2024, when demand reached a record 4,974 tons. As experts from the World Gold Council noted in their February report:
“Central banks continued to buy gold at a breakneck pace, with purchases exceeding 1,000 tonnes for the third year in a row and accelerating sharply to 333 tonnes in the fourth quarter.”
The catalyst was probably the economic wars that broke out after US President Donald Trump announced new trade tariffs for a number of countries. This topic very quickly filled the information field. As a result, the yield of the “main” metal has jumped since the beginning of the year and left behind both Bitcoin and traditional risk assets in the form of the S&P 500, which added 5% and 3%, respectively.
Returns on gold (red line), bitcoin (yellow), and the S&P 500 index (blue) from the beginning of 2025 to February 12. Data: TradingView.
And this is despite the fact that Bitcoin, from a regulatory point of view, is in perhaps its most favorable period in its entire history. Although in recent months, US political and economic circles have publicly called BTC and other cryptocurrencies the best hedging instrument, a “safe haven,” it is still physical gold, not digital gold, that has demonstrated confident growth this year, outpacing the entire market.
“I really don’t believe regulation is driving the expansion of blockchain. I think it’s driven by liquidity and transparency. And the expansion process itself is no different than what we did many years ago when we built the mortgage and high-yield markets,” BlackRock CEO Larry Fink said on the Q3 2024 earnings call.
A month earlier, analysts from the investment company drew attention to the high volatility of Bitcoin and its impact on the Sharpe ratio in the portfolios of investors using the traditional 60/40 scheme. The authors of the report recommended keeping BTC in the portfolio only in minimal proportions.
Thus, Fink and his team emphasized that Bitcoin is useful precisely as a partial diversifier, simultaneously adopting the properties of gold, fiat currencies, and risky assets like stocks. This is what we see in the chart below, which illustrates Bitcoin’s long-term correlations with gold, the S&P 500, and US Treasury yields.
In theory, gold's rise alone indicates serious economic concerns. Some analysts view the sharp increase in demand for the precious metal as a sign of impending stagflation, that is, a decline in GDP along with accelerating inflation and rising unemployment.
The last time something like this happened in the United States was just after the abolition of the gold standard in 1971, when rising commodity prices led to a deep crisis.
If you step away from economics and look at gold from a speculative perspective, you will notice that in recent years there has been little talk about it at all. Especially compared to the talk about the crazy growth of the stock market, cryptocurrency and the technology sector. Who needs a measly tens of percent when you can earn hundreds with the help of chatbots?
Katusa Research analysts have compiled a chart showing that there is no correlation between the rise in gold prices and media coverage. On February 1, at $2,800 an ounce, the “popularity” of the precious metal was near a five-year low.
Gold prices and media coverage. Data: Katusa Research.
“Despite gold’s 70% gain since 2020, its news coverage is at historically low levels. The precious metal’s rapid rise appears to have gone unnoticed,” experts say.
As ByteTree founder Charlie Morris noted, institutional investors are ignoring this opportunity because they remain so confident in equities. The same goes for gold mining companies, whose value lags far behind both the stock market and the metal itself.
From a Bitcoin Perspective
Of course, it would be nice to indulge the cryptocurrency ego and agree that Bitcoin can replace gold. However, this is unlikely to be a prospect in the coming years. Let's not forget that gold has thousands of years of experience in the market of safe-haven assets. Bitcoin has existed for less than two decades, and it is still perceived by public and government institutions as an experiment.
But there is one function that the first cryptocurrency can perform on par with gold - long-term savings. Even if the market does not accept other options for using Bitcoin, this is already a completely working scheme.
If we look at the price history of gold over the past decades, we see long cycles of growth that indicate its dominance over other markets.
Ratio of gold price to return on investment in cash, government bonds, stocks. Data: Topdown Charts.
Although there was a major drawdown by the end of the 1990s, over time the trend for gold to dominate has returned, first in relation to cash, then to government bonds, and now there is a battle for the stock market. Of course, the average investor will not see any growth opportunities here – only governments probably think on such a scale. But in the long term, gold is a great instrument that can protect capital in times of crisis of any severity.
This is very similar to what is happening with Bitcoin. In some cycles, some altcoins significantly outperform the first cryptocurrency in terms of profitability, but when looking at the long-term trend, it is clear that BTC is regaining the lead.
There is no doubt that Bitcoin already acts as digital gold within the cryptocurrency market. However, the horizons of physical gold are incomparably wider, and for now the first cryptocurrency can hardly claim the same place in the global financial system.