The financial markets are witnessing an intriguing development as gold-backed cryptocurrencies begin to outperform the broader market during a historic rally for the precious metal. Gold prices have surged approximately 9.7% so far this year, reaching a new record of $2,880 per ounce, driven by escalating trade war tensions and a growing demand for safe-haven assets.
Among the notable players in this space, PAX Gold (PAXG) and Tether Gold (XAUT) have significantly benefited from the rise in gold’s price, each demonstrating gains of roughly 10%, paralleling the spot price of gold. These cryptocurrencies are backed by one troy ounce of gold securely stored in a vault, showcasing an intersection between the traditional and digital asset landscapes.
In tandem with gold-backed cryptocurrencies, the traditional equity markets have also reacted positively, particularly in the mining sector. The VanEck Gold Miners ETF (GDX), which tracks the performance of gold mining companies, has seen an impressive rise of nearly 20% this year, thereby outperforming the S&P 500 index. This positive momentum underscores the robust demand for gold amidst adverse market conditions.
The recent price action has led to an increase in the supply of gold-backed tokens, with mints outpacing burns by millions of dollars on a weekly basis, as indicated by RWA.xyz data. Notably, transfer volumes for these cryptocurrencies have surged more than 53.7% month-over-month, highlighting a growing interest in these digital assets.
Several factors contribute to the rising gold prices this year, including tariff threats stemming from both the U.S. and China, the impact of the Spring Festival holidays in China, and a broader trend of increasing demand for the precious metal. In fact, the World Gold Council reported that last year, the demand for gold reached 4,945.9 tons, valued at approximately $460 billion.
Contrastingly, most major cryptocurrencies have faced challenges in the current market environment. Bitcoin has seen only a modest rise of 3.6%, leading to a 12-week low for the bitcoin-gold ratio, while ether has experienced a decline of over 17.6%. The CoinDesk 20 index has registered a mere 0.5% increase.
According to Mike Cahill, a core contributor to the Pyth Network, the dynamics between gold’s rally and bitcoin’s dip should not be viewed as a detriment to the ‘digital gold’ narrative. Rather, this situation serves as a preparatory phase. “Gold’s rally and bitcoin’s dip aren’t a failure; they’re a setup,” he observed. As fears surrounding trade wars and a strong dollar drive liquidity toward traditional safe havens, there remains potential for bitcoin to recover significantly once the risk appetite in the market rebounds.
Cahill further emphasized that savvy investors recognize the intrinsic value of Bitcoin as the hardest asset next to gold. He noted that as former President Trump’s pro-crypto stance potentially translates into favorable policy, Bitcoin stands to benefit immensely in the future.
