Are Gold Holders Deserting to Bitcoin?

According to BullionVault, the number of first time precious metal investors has fallen by 20%. In addition, the volume of google searches for "buy bitcoin" overtook the search "buy gold" for the first time ever last month.

Due to the massive increase in the price of bitcoin of late, the price of one bitcoin is now ten times the price of an ounce of gold, having smashed the $11,000 barrier in November.

Investors in Germany however, have acted contrarily to the trend by buying gold at what they believe are attractive prices.

Bitcoin has returned a huge amount to investors that invested a year ago, prompting many to turn away from gold towards the cryptocurrency.

A large amount of the demand from bitcoin is being generated in China, which according to critics, is mainly being used for money laundering and illegal international transfers due to current restrictions on money flows put in place by the Chinese authorities.

Some investment experts have raised the prospect of a type of "investment mania" occurring with bitcoin as the catalyst, similar to the "Tulip Mania" fad of the 17th Century.

According to Adrian Ash of BullionVault, "Bitcoin's fresh record highs have come alongside new highs in the stock market, led by stretched valuations in tech shares. The ultimate investment insurance of physical gold, in contrast, is trading flat in line with its five-year average".

The attractiveness of bitcoin is understandable given the returns it has achieved compared to those of gold, however gold has industrial and other uses in addition to being an accepted store of value, while bitcoin does not possess any of these qualities (Marina Gerner, Money Observer, December 2017).

In addition to this, bitcoin is currently unregulated leading to a lack of transparency and heightened risk.

Rather than investing in the latest fad, it's important to be fully informed and invest in line with the level of risk you are comfortable with. Our advisers can help you put a tailored financial plan that focuses on your long term financial success in place. Contact Westminster Wealth today.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

Information is based on our current understanding of taxation legislation and regulations which is subject to change.

Past performance is not a reliable indicator of future performance.