Why Goldman Sachs Claims Bitcoin Won’t Hurt Gold Demand

Head of commodities research at Goldman Sachs says gold demand will continue to be protected.


bitcoin won't hurt gold demand


Bitcoin’s recent surge has not gone unnoticed – heightened investor interest coupled with the launch of futures caused a spike in prices not seen before from cryptocurrencies. As a result, the attention from investors led some to wonder whether this could have a negative impact on the gold market.

An article from Business Insider elaborates on this question, commenting that the two assets are sometimes compared. Both seem to appeal to the wary investor reluctant to move into riskier assets and both are seen as insurance against the monetary system. However, author of the article Will Martin says it’s easy to get carried away in comparing the two while forgetting bitcoin’s infamous volatility. The same property that allowed for a 15-fold price increase in a short amount of time could also spell doom for the cryptocurrency, as many are already wondering whether a correction is in store.

And while some analysts are pointing to the surge in bitcoin prices as having already caused investors to turn away from gold, Martin says others don’t see a correlation.

The article features Jeffrey Currie, head of commodities research at Goldman Sachs, who said in a research note that gold demand will continue to be protected by the metal’s fundamental differences from bitcoin, not the least of which is a completely separate pool of investors with an alternate mindset.

“With this week’s launch of the CBOE bitcoin futures contract, many commodity investors have been asking: ‘is bitcoin taking demand from gold?’ We believe the answer is no,” said Currie in the note.

According to the analyst, data from gold ETFs still shows no evidence of a flight from gold due to bitcoin. In fact, Currie points out that the holdings of these funds recently reached their highest level since mid-2013, which would hardly be achievable if the soaring interest in cryptocurrencies had a negative effect on gold demand.

Currie does note some similarities between the two assets: each has a finite supply, although gold is more difficult to obtain, which contributes to their value – a large part of the interest in bitcoin stems from the promise of limited supply which will maintain its value, much like in the case of gold. However, the article shows that gold and bitcoin not only have different characteristics but also, despite the general idea of the two, attract different investors.

The fact that cryptocurrencies have drawn more speculative interest as opposed to gold exemplifies the differences between the two groups of investors, says Currie, suggesting that risk-averse market participants will continue to favor the yellow metal regardless of bitcoin’s trajectory.