In a recent report cited by MarketWatch, JP Morgan pitches the notion that gold is on its way to being the new old money. Supposedly today’s seasoned investors are the last generation to own it and its 5000 year history as a store of value is in its last days:
”There is little doubt that this competition with gold as an ‘alternative’ currency will continue over the coming years given that millennials will become over time a more important component of investors’ universe and given their preference for ‘digital gold’ over traditional gold,” the research team wrote in the research reported dated Monday.”
But this is just another way of saying inexperienced investors like cryptos. You could say the exact same thing about dotcom stocks in 1999. Boomers bought heavily into the bubble a couple decades ago, driving tech and telecom stocks up to crazy valuations, too. And they got burned as the bubble imploded. JPM could just as well have written in early 2000 that the many doomed dotcoms “will become over time a more important component of investors’ universe”.
Extrapolation of the recent past is easy, but when has it been a good way to forecast the future? Are we to take what’s hot with inexperienced investors as a portent for the rest of time? They like digital tokens now so they always will?
If anything, this just tells us that JMP wants you to sell your gold. Maybe its more seasoned clients want to buy it. Or maybe Wall Street and Silicon Valley just don’t want you to realize there’s an alternative to buying their overpriced and overhyped securities. You sure wouldn’t know by following most of their media that stocks have underperformed gold for the first two decades of this millennium.
So now, after a five thousand year track record as durable money, we are supposed to believe gold is about to be rendered obsolete by mere bits of disembodied technology. This isn’t to say there no merit to owning bitcoin – it could be another tool in the defense against central bank money – rather that it would be a mistake to view it as a substitute for gold.
Despite bitcoin’s incredible run of late, there is little to indicate it has the essential safety properties of gold. It performed more like stocks in the corona crash earlier this year. In fact it’s more closely paralleled the rise of tech unicorns and speculative SPACs – sort of like a tech stock without the stock – a tech stock without any of those boring encumbrances like assets or revenue or earnings. It’s certainly been a beneficiary of the flight from dollars and other fiats, but when there’s a flight from stocks, it’s been shaky at best. If bitcoin is a substitute for anything, it’s tech stocks. For the safety of gold, there is only gold.
Much is made of the advantages of digital money. But that’s not new. The dollars in your bank account are digital. In these days when the virtualness of something is supposed to provoke only oohs and aahs, the tangibility of other things can still be a huge advantage. A key reason gold is prized is that it is a tangible, material thing. It inherently cannot be produced cheaply. With digital tokens this property can only be artificially imitated. Your gold cannot be hacked by a stranger on the other side of the world, and there is zero threat of some brilliant coder inventing yet another competitor. It cannot be reproduced or copied. It will still be yours if the power goes out or if the network goes down. Whatever else it may be, bitcoin is not digital gold.