In a crisis, gold proves its mettle as bitcoin loses its luster

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In a crisis, gold proves its mettle as bitcoin loses its luster

Published: 23 Feb. 2022, 18:03 Updated: 23 Feb. 2022, 18:31

Gold bars are displayed at Korea Gold Exchange's office in Jongro District, central Seoul. [YONHAP]

The crisis in Ukraine is driving up the price of gold and knocking bitcoin and other crypto investments.

While the former continues to prove itself as a safe haven during times of trouble, that latter is adding to the argument that it is just another speculative play.

According to Korea Exchange, a gram of gold traded for 72,990 won ($61.20) as of Tuesday, up 0.83 percent compared to the previous day. It is the highest price since Sept. 18, 2020.

On New York's Commodity Exchange (Comex), an ounce of gold traded for $1907.40 on Tuesday, up 0.4 percent compared to the previous day. Compared to 2022's first trading day on Jan. 3, the figure is up 6 percent.

Analysts say gold has become popular for investment due to its stability, especially during times when conflicts escalate between United States, Russia and Ukraine.

"Gold prices have been rising due to geopolitical concerns, arising from various reports such as shelling incidents in Ukraine," said Hwang Ji-yeon, an analyst at Kyobo Securities.

Russian president Vladimir Putin ordered troops into two regions in eastern Ukraine on Monday. U.S. president Joe Biden then announced the following day that new sanctions will be imposed on Russia, saying Russia has begun an invasion of Ukraine.

With people putting their money in safe assets, bitcoin, considered as one of the riskiest investment choices, has been tumbling.

Bitcoin traded at $38,064.43 at 3:30 p.m. on Wednesday, rebounding 3.7 percent compared to the same time the previous day but down 13.7 percent compared to a week ago.

Compared to Jan. 3, prices are down 19 percent.

Bitcoin prices used to move independently from U.S. stock indices, but the cryptocurrency is now mirroring them. With the indices falling, bitcoin is also expected to continue falling.

According to cryptocurrency market tracker IntoTheBlock, the correlation coefficient of the bitcoin and Nasdaq 100 was 0.9 in January, the highest ever. A coefficient closer to 1 means that they mirror each other.

"The only similarity between bitcoin and gold is that they are assets that are limited in quantity," said a spokesperson working in the cryptocurrency market. "Because bitcoin is highly volatile, it will take decades for it to be considered a low-risk asset."

Du Jun, founder of Seychelles-based cryptocurrency exchange Huobi, told CNBC on Feb. 20 that bitcoin bull markets are closely tied to a process called halving, which occurs every few years

"Following this cycle, it won't be until end of 2024 to the beginning of 2025 that we can welcome next bull market on bitcoin," he said.

Bitcoin prospects are gloomy, but gold will continue to be favored by many.

In January, Goldman Sachs raised the 12-month outlook for gold to $2,150 per ounce from its past price of $2,000, saying that demand for low-risk assets are on the rise to hedge inflation.

BY LEE TAE-YOON, LEE TAE-HEE [lee.taehee2@joongang.co.kr]