(Kitco News) – Cryptocurrencies like bitcoin continue to make new highs while hurting commodities, especially one asset class with a long history — gold.

The ongoing debate in the financial community is whether bitcoin (or other cryptos) will replace gold. But, one analyst is convinced this will “never” happen.

“It seems that more and more people justify investing in cryptocurrencies — even at current record prices — by claiming that they’re an effective hedge against the instability of fiat currencies,” wrote Olivier Garret, CEO of Mauldin Economics, in a Forbes post Thursday.

But it is hard assets like gold that are the “real stores of value” and safety against currency depreciation while cryptocurrencies fall short, argued Garret.

“Despite what the crypto-evangelists will tell you, digital tokens will never and can never replace gold as your financial hedge.”

Garret laid out a six-prong analysis comparing the two asset classes to make his case.

First, he argued that a majority of the digital coins available today will be “wiped out” and unlike gold, cryptocurrencies do not have a long history as a store of value.

“Only a few will become the standard, and nobody knows which ones at this point,” he said. “Cryptocurrencies have been around for less than a decade, whereas gold has been used as a store of value for thousands of years…We know for a fact that stocks and bonds have low or negative correlations with gold. This makes gold a powerful hedge.”

Garret also pointed out that hype and speculation seem to be driving cryptocurrencies’ values higher, which has many investors questioning whether some of these markets are in a bubble.

“With such an extreme degree of volatility, cryptocurrencies’ value as a hedge is questionable…This is pure speculation, not hedging,” he said.

Gold is considered the anti-fiat currency and although some investors like to argue cryptocurrencies also play that role, Garrett noted that digital currencies are more similar to fiat money than people think.

“The definition of ‘fiat money’ is a currency that is legal tender but not backed by a physical commodity,” he explained. “It’s clear that cryptocurrencies partially fit the definition of fiat money. They may not be legal tender yet, but they’re also not backed by any sort of physical commodity. And while total supply is artificially constrained, that constraint is just… well, artificial,” he added.

Garret also alluded to security and liquidity concerns surrounding cryptos that gold just doesn’t have.

“With security issues surrounding cryptocurrencies still not fully rectified, their capability as an effective hedge is compromised,” Garret wrote.

As for liquidity, he noted that gold can be converted into, “cash on the spot, and its value is not bound by national borders. The same cannot be said about cryptocurrencies. While they’re being accepted in more and more places, broad, mainstream acceptance is still a long way off.”

Just the mere size of both these markets is also a testament to gold being a stronger hedge, he said.

The World Gold Council put the total value of all gold ever mined at $7.8 trillion while cryptocurrency markets total at about $161 billion, Garret noted. “That’s a long shot from becoming as liquid and widely accepted as gold.”

Are diamonds the new safe-haven hedge against volatility? This Singapore’s exchange thinks so.

Singapore Diamond Investment Exchange (SDiX) has introduced a credit card-sized package of diamonds for those risk-off investors who want to protect themselves against any market instability.

“A diamond has absolutely zero correlation with any other asset class, whether it’s commodities, bonds, equities. It’s a store of wealth, it’s a hedge against volatility and you need that in your portfolio,” Alain Vandenborre, executive chairman of the exchange, said on Tuesday.

The new format allows traders to invest in diamonds as they do in gold.

“Until now, there was no way people could invest in diamonds in the form which is equivalent to investing in gold,” Vandenborre pointed out.

The exchange attempts to simplify diamond investment by selling what it calls Diamond Bullion — sets of investment-grade polished precious stones that come in denominations of about $100,000 and $200,000 each.

Vandenborre recognizes that diamond investment can be complicated, as all gems are different in color, cut, clarity and carat. But, he is certain that with the Diamond Bullion, precious stones can be the “new gold.”

The precious stones offered on the exchange are issued by the Singapore Diamond Mint Co. and are sourced from the wholesale market through De Beers and Alrosa. All gems are also in the top five levels of color and clarity, Bloomberg quoted Vandenborre as saying.

The SDiX plans to expand its product in the future by listing other denominations as well.

As of now, the Diamond Bullion is tradeable, with real-time pricing available online, according to the exchange.

SDiX was launched in May 2016 as “the world’s first fully electronic diamond exchange.”

(Kitco News) – Germans invested a hefty $7 billion into gold products in 2016, the World Gold Council (WGC) said in its October market update, adding that there is more room to grow.

WGC pointed out that traders in Germany choose to protect their wealth by buying gold, as loose monetary policies around the world and a potential of another financial crisis are worrying the EU country.

Germany’s volatile economic history is one of the underlying reasons behind the country’s appreciation for gold.

“German investors have an acute awareness of the wealth-eroding effects of financial instability. Hyper-inflation in the 1920s lingers on in the collective memory but, perhaps more importantly, German investors have seen fiat currencies come and go: in the past 100 years, Germany has had eight different currencies,” WGC noted.

Now, Germany is a 100 t-plus per year market for bars and coins and a vast gold-backed exchange-traded commodities (ETC) market, according to the latest data provided by WGC.

“Last year, more than €6 billion ($7 billion) was ploughed into gold investment products in Germany,” the report stated.

“During our field research one investor described [gold] as an enduring currency – to protect their wealth,” the WGC said. “Industry contacts estimate there are now 100-150 non-bank bullion dealers nationwide.”

A 2016 survey conducted by Kantar TNS also revealed that 59% of German respondents agreed that gold will never lose its value in the long-term, while 48% agreed that owning gold made them feel secure for the long term.

ETCs are very popular gold investment tools in Germany. The difference between gold-backed exchange-traded funds (ETFs) and ETCs is that the latter does not entitle investor “to take delivery of physical gold upon redemption.”

Gold’s future is very bright in Germany, according to the WGC, which said that there is a lot more room for additional growth.

“The consumer research conducted by Kantar TNS indicated that there is latent demand for gold amongst retail investors. This suggests potential for further growth in demand for gold bars, coins and ETCs in Germany.”

By Anna Golubova
For Kitco News