Investors Turn to Gold as Inflation Threat Looms, Is Bitcoin Next?

With more prominent investors raising the alarm bells over possible inflation as a result of fiat currency debasement by central banks around the world, gold has soared to its highest level since 2012. With all the fundamentals seemingly in place, the question for the bitcoin (BTC) community is when the digital gold will follow.

Both gold and silver made headlines over the weekend as they ended the trading day on Friday on a positive note for investors, trading higher for four consecutive days. Both precious metals were also up sharply in early Monday trading, with silver standing out with a gain of more than 4%.

Following the surge higher over the past few weeks, gold is now approaching its highest level from back in 2011 of just over USD 1,900, which ended a decade-long bull market for the yellow metal.

The large moves were noticed by many investors, with Rich Dad, Poor Dad author Robert Kiyosaki tweeting that he has “bought more gold, silver, bitcoin,” as he expects the next bailout to be in the trillions of dollars and BTC to hit USD 75,000 in three years.

“Money printing by central banks and vast state stimulus packages are rekindling interest in one of the oldest stores of wealth,” despite the fact that the same gold trade to a large extent was unsuccessful in 2008, according to Bloomberg. This time, however, investors such as Paul Singer, David Einhorn, Crispin Odey, and asset managers Blackrock Inc. and Newton Investment Management are betting that things will be different this time.

In a separate article, Kenneth Rogoff, a professor at Harvard, former chief economist at the International Monetary Fund, argued that “certainly the global nature of [this crisis] is different and this highlights the speed.”

According to the professor:

• In 2008 it was the rich countries and not the emerging markets.
• The policy response this time is also different.

As for inflation, Rogoff stressed that “we don’t know where we will come out.” According to him, for the foreseeable future, we’ll have deflation. However, while the market sees essentially zero chance of ever having inflation again, the professor thinks that “that’s very wrong.” He did not specify when and how much inflation might increase.

For investors in digital gold, however, the extreme money printing by central banks – led by the US Federal Reserve (Fed) – has so far failed to propel bitcoin above a major resistance area around USD 8,800, although bitcoin’s performance year-to-date is still ahead that of gold.

Further, the fundamentals that have offered backing to gold’s rise this year are also present for bitcoin, with a strictly limited quantity of bitcoin compared to an essentially unlimited quantity of fiat money being created by central banks.

Also, the inflation argument for bitcoin is one that is being heard far into mainstream investor circles, with for example the trading legend Paul Tudor Jones confirming earlier in May that he has allocated hundreds of millions of US dollars to bitcoin.

“If inflation takes off, then people would look at things that keep a store of value and Bitcoin has some of that functionality,” Jerry Braakman, chief investment officer of First American Trust told Bloomberg. “The problem with that argument now is where is inflation going to come from? There’s no demand or cost pressures to push inflation higher so how are you going to get inflation in this environment?”

At pixel time (12:30 PM UTC), BTC trades at USD 9,623 and down by 1% in a day, trimming its weekly gains to 6%.
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