Bitcoin vs. Gold: Which Red-Hot Dollar Hedge Should You Buy?

Currencies and precious metals aren’t typically our thing. As we often say here at Cabot Wealth Network, we’re stock pickers. Picking the best stocks in the market time after time is what has made our subscribers money, and kept us in business for 50 years. But I have to admit: the recent run-ups in bitcoin and gold prices have been intriguing. So let’s compare bitcoin vs. gold, to see if either is worth an investment.

Bitcoin vs. Gold: One-Year Comparison

First, let’s start with the charts. Here’s what a one-year chart of bitcoin looks like (chart courtesy of Coindesk.com):

Not bad. At more than $12,000, bitcoin prices have more than doubled since mid-March, when they bottomed just below $5,000 along with everything else. The net gain over the past year isn’t as impressive, just over 18% – only slightly ahead of the 17% gain in the S&P 500, and well below the 39% run-up in the Nasdaq.

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So now let’s look at a one-year gold price chart (courtesy of goldprice.org):

Bitcoin vs. gold in the last year goes to gold, thanks to this chart.That’s a much better looking chart! At more than $2,000 an ounce, gold has never been more expensive. As you can see, gold hovered in the $1,450 – $1,675/ounce range from last August through this March. Then the first breakout came in April, and a much bigger one came in the last month, pushing gold prices to new highs. All told, the price of gold is up 32% in the last year.

That’s pretty good. When you compare those one-year returns to what has happened to the U.S. dollar (-5.9%) in the last year, bitcoin and gold would have been much better investments. But again, if you had bought the average Nasdaq stock, you’d have fared even better.

Bitcoin vs. Gold: Five-Year Comparison

Now let’s take a look at how bitcoin and gold have performed in the last five years. Again, let’s start with a five-year chart of bitcoin (this one courtesy of tradingview.com):

If you're looking at the past five years, bitcoin vs. gold is no contest.That’s much more impressive. Five years ago today, one bitcoin was worth a mere $228. If you had the foresight to invest in bitcoin back then, you’d be sitting on a life-altering return of 5,187%. You’d be rich.

Let’s compare that to a five-year chart of gold prices:

That’s a pretty good chart. But there’s no comparison. The five-year change in gold prices is a mere 73% – virtually on par with the S&P 500 during that time (+71%), but barely half the 134% rally in the Nasdaq.

So, in the battle of bitcoin vs. gold, gold wins in the short and intermediate term, outperforming bitcoin for the past year-plus. But if you look further out, it’s no contest; bitcoin wins in a landslide.

Here’s the problem with both alternative forms of currency, though: their biggest runs are already behind them. Bitcoin will never make as big a jump as it did in the last five years – particularly in 2016-17, when prices topped $19,000 at one point. In fact, if you invested in bitcoin when it was super-hot in late 2017/early 2018, you lost a lot of money.

Gold tends to be steadier. It’s called the safe haven investment for a reason, after all. And with a global pandemic continuing to rage, gold is understandably having a very good year, up 32%. But when the pandemic wanes, the flight to safety will subside, and gold prices will start to sag again. A year from now, I doubt gold prices will be much higher than they are today; in fact, they’re likely to be lower.

Stocks are a Better Bet

The stock market, on the other hand, is always rising. Sure, there are bear markets, market corrections and market crashes along the way; in fact, we’ve seen all of them in the last six months! And yet, here stocks are, hitting new all-time highs, pandemic or not. They may not be higher a year from now (though I bet they will be); but three years from now, I can all but guarantee that they will be.

Bottom line: the bitcoin vs. gold battle is an interesting sideshow, and you could have made money in either currency in the past year—and especially the last three- and five-year periods. But both currencies have a ceiling. Stocks don’t have that problem.

So, if you’re a long-term investor (and frankly even a short-term one), I’d stick to stocks.

Chris Preston

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Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.

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