Institutional view: Without Bitcoin, the gold price should be $2,300

Mike McGlone, senior commodity strategist at Bloomberg Intelligence, said on Thursday (April 29) that so far, the digitalization of currencies has been benefiting the U.S. dollar and Bitcoin, while gold has been weakened.

In the process of digitalization, gold is being replaced by Bitcoin

“As we’ve seen, the metals sector is most likely to continue to outperform most commodities, especially in the longer term,” McGlone said. “The accelerating trends of decarbonization, electrification and digitalization are unbundling metals like copper from crude oil, which is being displaced by technology, and gold is being similarly impacted. The digitalization of currencies has increased the value of the dollar as a reserve currency, while gold, in contrast, is being displaced by Bitcoin.”

Without Bitcoin, gold would likely be trading well above $2,000 an ounce, McGlone said. The popular cryptocurrency continues to limit gold's upside potential. "If copper prices held near $9,800 a tonne on April 28 and yields held constant, gold would have to be closer to $2,300 an ounce, rather than about $1,780 an ounce, to match the copper-to-gold ratio's nearly decade-long correlation with bonds," he calculated.

The strategist noted that technological innovation is far less friendly to gold than it is to metals such as copper: “As we have seen, gold has reached an inflection point in portfolios and is being replaced by Bitcoin. In the context of digitalization, there may be nothing to prevent the accumulation of Bitcoin at the expense of gold.”

Gold and Bitcoin combination investment has more advantages

McGlone's solution is to pair gold with Bitcoin. He said: "We expect the acceleration of Bitcoin's replacement of gold in portfolios to be a major theme in 2021. Without being paired with Bitcoin, gold's appeal gradually decreases, and the continued digitalization may limit the price appreciation potential of gold, and the price of gold will be traded below $1,800 per ounce."

More specifically, McGlone has been watching the Gold Bitcoin 75/25 Portfolio Index: “The annual measure shows that the Gold Bitcoin 75/25 Index has roughly the same risk as the stock market, demonstrating the benefits of diversification and Bitcoin’s low correlation with most assets. As Bitcoin fell from $17,000 in early 2018, the Gold Bitcoin 75/25 Index rose about 110%, nearly double the total return of the S&P 500 and more than three times the S&P 500.”

McGlone added that industrial metals should continue to outperform precious metals, but warned that copper prices are at risk of a correction in the second half of the year. "If the stock market continues to rise, industrial metals should continue to outperform precious metals, but we believe that the increasing dependence on rising stock markets is the biggest risk facing commodities," he said.

(Daily chart)

At 07:54 Beijing time on April 30, it was reported at US$1,773.44 per ounce.