2025 - Bitcoin triumphs over gold
Gold's future could look grim if the US government decides to sell a portion of its gold reserves to create a strategic stockpile of bitcoin. This move could significantly affect gold's market position.
Despite the challenges, gold still shines in its own right. It has gained 25% in value during 2024. In comparison, the S&P 500 index rose by 23%, while bitcoin skyrocketed by 120%. The question remains: is this the final surge for gold?
Even with a strong performance this year, gold's growth pales against bitcoin's meteoric rise. An examination of returns over the past five years shows that bitcoin’s average annual return stands at an impressive 77%. In contrast, gold's return hovers around 10%, while the US stock market delivers about 15%.
Looking at the last five years, the numbers tell a similar story: bitcoin at 67%, gold at 13%, and US stocks at 17%. While gold's 25% increase in 2024 is commendable, it remains overshadowed by the much higher volatility and returns of bitcoin.
Analyst Jan Nieuwenhuijs raises intriguing points concerning gold's future. He contemplates whether this could be a temporary bounce, often referred to as a “dead cat bounce,” or if gold might soar to $8,000 an ounce. He identifies three significant threats to economic stability: increasing geopolitical tensions, overwhelming levels of debt, and persistent inflation. These factors are contributing to a diminishing trust in the dollar, prompting investors to shift from financial assets, such as US Treasury bonds, which carry counterparty risk, to safer options like gold.
Over the last year, US Treasury bonds have dropped by 8%. The ongoing conflict between Western nations and the BRICS bloc has fueled a growing skepticism towards US debt, particularly when interest rates from the Federal Reserve have reached peaks not seen since the financial crisis of 2007.
Niewenhuijs argues that US foreign policy could drive central banks toward gold as a reserve asset instead of holding dollars in the form of Treasury bonds. He highlights the decline in gold's share of international foreign exchange reserves. This percentage fell from 95% in 1933 to less than 10% by 2015. Yet now, amid rising geopolitical tensions and concerns regarding US public debt, many countries are reconsidering their stances on gold. His estimates suggest that by the third quarter of 2024, the share of gold in total reserves has rebounded to 21%.
The freezing of assets belonging to Russia, totaling 300 billion euros and dollars, signals a broader trend. Countries like Saudi Arabia have increased their gold imports significantly in response to the global instability. China has also been proactive, although there is uncertainty surrounding its actual gold reserves. What is clear is that China's dollar reserves have been cut in half over the past ten years.
Central banks worldwide are increasingly acquiring gold, primarily due to their hesitance to rely on the dollar. Fear of retribution from the US for not complying with its foreign policy has caused many nations to act. In 2022, gold purchases by central banks hit historic levels, marking the highest totals since 1950. Both 2023 and 2024 saw similarly robust buying patterns.
India stands out with a fivefold increase in gold purchases, acquiring 77 tonnes in the first three quarters of 2024. Turkey follows closely, purchasing 72 tonnes, raising its gold holdings to 34% of its foreign exchange reserves. Poland is another notable buyer with 69 tonnes. China continues to hold its position as a leading buyer with just under 30 tonnes.
Other countries, including the Czech Republic, Qatar, Iraq, Oman, and the Kyrgyz Republic, have also jumped on board, alongside Kazakhstan, Hungary, Thailand, Japan, Brazil, and Singapore over the past four years.
According to the 2024 Central Bank Gold Reserves Survey, most central banks—about 70%—expect to continue purchasing gold, albeit at a moderate pace, in 2025. They emphasize the role of gold as a strategic asset that helps mitigate risks associated with asset freezes.
Regarding bitcoin, it appears that many nations are contemplating incorporating it into their foreign exchange reserves. However, the risk remains high, particularly if the US takes the lead in this arena. Nations are likely waiting for a clear signal from the United States before proceeding with such an important decision.