Investors turn to gold as crypto winter deepens

The volatility of the cryptocurrency space has led to a surge in investors turning to gold, with a 239% hike in crypto-based investors purchasing gold coins and bars in the seven days from 8-14^th November, compared with last year’s weekly average.

The fall of FTX (the third largest cryptocurrency exchange by volume) is yet another shock to the crypto environment, denting confidence in the alternative asset and prompting some investors to reassess their options.

More than two thirds of investors say they have turned to gold because the cryptocurrency space is awash with extreme volatility, liquidity concerns and counter-party risk. Many are being prompted to take a defensive approach to the asset class moving forward following the collapse of FTX.

Cryptocurrencies like Bitcoin have previously been hailed as new safe-haven assets which skyrocketed during the pandemic when other assets struggled. But their steep decline since the start of the year and the semi-regular collapse of cryptocurrency coins or exchanges has tarnished the gilding of this alternative asset.

Crypto’s problems add yet another woe to a long list of investor concerns which already weighs heavy with inflation, the cost-of-living crisis, a recession and a stock market under extreme pressure.

For almost a quarter of investors, their interest in physical precious metals doesn’t necessarily mean they are swapping crypto for gold, instead purchasing gold provides a hedge or an insurance policy in a far riskier crypto marketplace. They are broadening the scope of their investment portfolio for protection rather than growth.

Some hope that gold’s relationship with equities and currency (gold tends to rise when other assets are falling) will extend to crypto. However, many investors would rather their gold fall and crypto increase given crypto gains can be much bigger than gold.

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More than 17 per cent of The Pure Gold Company’s crypto-based clients work within the financial services sector and expect an outflow of investments from crypto to other asset classes such as gold, silver and gilts. This combined portfolio of contrarian assets would at least secure guaranteed income, albeit below the rising cost of living.

Some of these clients are connected to firms which have written down investments in FTX to £0 and believe that this could happen in other funds as investors potentially replicate the FTX ‘bank run’ on other crypto platforms.

Our clients are not purchasing physical gold purely for growth, it’s more about protection and wealth preservation during times of amplified uncertainty. Investors take comfort in knowing that they hold something that has intrinsic value, that cannot drop to zero and has increased in value during almost every recession.

Reassuringly, gold is almost as liquid as cash and can be converted into any currency in the world at any time. Many of our professional clients expect to see opportunities in property and equities over the next year or two when these assets are at the bottom of their cycle. While they wait for such opportunities to present themselves, these investors are preserving their wealth in a safe-haven asset like gold.