Is gold being ousted by Bitcoin?

Get real

Investor demand has become the key driver for gold prices, rising by about 235% in the last 30 years, and now amounts to about 30% of global demand. Gold prices tend to rise as investors seek its use as a safe haven, and fall as investors sell out. Gold seems to act best in times of extreme systemic risk. In the 1970s, when US inflation was in double digits, gold prices rose 18-fold, and in the year after the collapse of Lehman Brothers in 2008 it went from $700 an ounce to $1,054 an ounce.

The main trigger for investors to buy gold appears to be sharp falls in ‘real’ interest rates, usually as a result of sudden rises in inflation. The ‘real’ interest rate equals the government base rate minus the rate of inflation and reflects the real return on money held as cash. So, if inflation rises to 8% and the base rate is 1%, the real interest rate is -7%. In this circumstance, parking your money in a government bond will see it lose 7% a year in…