Published in Vorarlberger Nachrichten, 10 March 2024 - Interview with Business Editor Hanna Reiner

In your opinion, what are the main reasons for the recent rise in the gold price to a record high?

The recent rise in the gold price is probably closely linked to investors' interest rate expectations. On 29 February, the latest inflation rates (PCE Price Index) were published in the US, which were in line with expectations at 2.4 per cent and close to the monetary authorities' target. Accordingly, this fuelled new hopes among many investors that the Fed could cut key interest rates as early as the next interest rate decision at the end of March. These prospects not only caused the stock markets to rejoice - the price of gold also rose to a record level. This is because gold, which is interest-free per se, would benefit from a fall in key interest rates and become more attractive again for investors compared to other assets.

Other drivers include the current conflicts in Ukraine and the Middle East as well as concerns about China's economic development. In his State of the Union address, Putin once again blatantly threatened the West and also mentioned the use of nuclear weapons should Western soldiers be deployed in Ukraine, as recently suggested by French President Macron. Despite the current ceasefire, an end to the war in Gaza seems a long way off. In addition, the Houthi rebels in the Red Sea are disrupting sensitive supply chains by attacking freighters and merchant ships. Analysts are also concerned about China, where the National People's Congress is currently in session, with the focus clearly on head of state and party leader Xi Jinping. Now that the Chinese economy is developing below expectations, threats against Taiwan could increase again and fuel a new centre of conflict. Gold is considered a crisis currency: geopolitical uncertainties often drive investors into the "safe haven" of gold. Rising demand ensures a higher price.

Another reason for the high gold price is the high demand from central banks. The BRICS countries in particular are dumping US government bonds and exchanging large parts of their dollar reserves for gold reserves.

What is currently boost the Bitcoin price?

The Bitcoin price is being boosted by inflows of funds that have also been invested in Bitcoin by institutional investors since the US Securities and Exchange Commission approved Bitcoin funds in January. These funds have exceeded all expectations and are recording capital inflows of hundreds of millions of dollars every day. BlackRock's fund, for example, has broken through the ten billion dollar mark faster than any other ETF (exchange-traded fund) ever before.

The Bitcoin halving expected for mid-April, in which rewards for Bitcoin miners for verifying crypto transactions will be halved, also provided a boost.

What risks and opportunities do you see when investing in gold compared to Bitcoin?

Quite a few people see gold and Bitcoin as "brothers in spirit". Both groups of investors share similar views, such as the desire for non-inflationary money or independence from central banks.

In terms of security, the fact that a total loss is impossible speaks in favour of gold. Bitcoin is different: no electricity, no internet, no cryptocurrency. And anything programmed by humans can be manipulated by humans. What's more, the cryptocurrency is still too young to be able to predict where its development will take it.

Another plus in favour of gold is its real utility value. Gold is not only a store of value, but is also needed in industry and the jewellery sector. This creates additional desirability. The value of Bitcoin, on the other hand, is purely nominal.

While gold has a long history as a hedge against inflation, Bitcoin and other cryptocurrencies do not yet have the longevity to be considered as such instruments. However, they have the potential to become an alternative to fiat currencies. In the meantime, Bitcoin is mostly seen as a "high-risk investment with potential for high returns" or a "purely speculative bet".

How do you assess the long-term outlook for the gold price?

We remain positive about the development of the gold price. Unfortunately, the geopolitical trouble spots are likely to remain. Central banks will continue to buy gold. In many cases, the strategic goal behind this is to become less dependent on the US dollar as the leading currency in global trade. Although speculation about a gold-backed currency for the BRICS countries has not been confirmed, a de-dollarisation strategy is likely to be behind the build-up of a larger gold reserve. In addition, countries with high gold reserves are less susceptible to future US sanctions. The uncertainties surrounding the US presidential election in November are also providing a tailwind. Historically, US presidential elections have often had a direct impact on the price of gold, as a change in leadership has often brought with it a change in fiscal policy. At the same time, incumbent presidents often get carried away with expansionary "election gifts" before the election, which could fuel inflation once again. We expect the price of gold to reach USD 2,250 per troy ounce by the end of the year.

How sustainable do you think the interest in cryptocurrencies is?

At the moment, it looks very much as if spot Bitcoin ETFs will soon overtake gold ETFs, even though the latter have been around for over 20 years, while Bitcoin funds have only been tradable in the US for just under two months. The background to the high demand is the increasingly stable legal framework of market regulators, which is encouraging more and more institutional investors and banks to invest in the crypto market.

What tips would you give to investors who want to invest in gold or Bitcoin, particularly with regard to diversification and risk management?

Gold belongs in every investment portfolio as a stabilising addition, because a certain proportion of gold reduces the risk of suffering major losses. We recommend investing at least five to a maximum of 20 per cent of your assets in gold. For long-term asset protection, we clearly recommend buying physical gold in the form of coins and bars, as this offers the highest level of security. In order to compensate for fluctuating gold prices, we recommend buying gold at regular intervals.

The special characteristics that fundamentally distinguish Bitcoin from other asset classes increase the overall diversification of a portfolio. As timing plays a very important role, unlike with gold, very intensive market observation is required. The extremely high volatility requires very close risk management. We believe that an allocation of a maximum of three per cent is acceptable. The easiest and cheapest way to buy bitcoins is via a crypto exchange.