- Gold’s safe-haven status put to the test.
- “Digital gold” emerges as superior replacement.
- The difference in gains will shock you.
So much for low stock market volatility…
An escalating war of words between President Donald Trump and North Korea has finally struck fear in the hearts of investors.
Stocks posted their heaviest losses since May.
And the VIX — known as the stock market’s fear gauge — rose 44% last Thursday, to 16.29, its highest level of the year.
For safety against stock shocks, many financial talking heads are advising investors to dump shares and buy gold.
Not a terrible idea.
But if you’re hunting for a hedge, senior analyst Jonathan Rodriguez has a superior asset in mind.
It’s known in some circles as “digital gold.” And its recent performance against regular gold may shock you.
The New Safe-Haven Asset: “Digital Gold”
Gold has long been heralded as a safe haven for investors.
When stocks get hammered in a crash, gold generally rises or trades flat.
And though investors can now buy inflation-protected Treasuries here in the United States, gold is also frequently used as a hedge against inflation.
But an unlikely contender has risen up through the ranks to fight against stock shocks: cryptocurrencies.
Let me explain…
As you may know, the stock market has been on a tear since Donald Trump won the presidential election last year.
And so far, aside from last week’s fall, the S&P 500 has been rocked by a one-day drop of more than 1% just three times in 2017.
In each of those “shocks,” the price of gold saw an uptick.
But here’s the kicker…
Bitcoin rose radically higher.
A Shocking Revelation
The first shock hit on March 21, wherein the S&P fell 1.2%. Gold notched a gain of 0.9% that day, while bBitcoin rose 6.3%.
The second shock knocked 1.8% off the S&P on May 17. Bitcoin spiked 6%, more than triple the rise of gold on the day (1.9%).
And last Thursday, large-cap stocks dropped 1.4%.
Gold gained 0.7%, while Bitcoin rose 1.2% — nearly twice the move of the precious metal.
In fact, bitcoin soared 28% last week, during one of the worst weeks for stocks of the year, in which the S&P 500 dropped 1.4%.
How did gold fare in the face of the stock pressure? A mere 2.5% gain — less than a 10th of Bitcoin’s surge.
Of course, Bitcoin hasn’t undergone a true “safe haven” test against a stock market correction (a drop of 10% or more) or even a bear market.
And there’s no question that the cryptocurrency is more volatile than gold…
Over the last 12 months, bitcoin has made an average upward daily move of 0.5%, with a standard deviation of 3.6%.
Gold, on the other hand, boasts a 0.01% decline on average but a standard deviation of just 0.69%.
The larger an asset’s standard deviation, the more “risky” it is.
But if the uptrend in price during stock market dips holds up, bitcoin is making a strong case for inclusion as a safe-haven asset.