Hedge Your Bets: Expert Investors Explain When to Go For Gold or Bitcoin

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Gold ingots - Sputnik International
The crypto-currency Bitcoin has some potential as an investment instrument, but gold should still be the first port of call for investors who want security, analysts told Sputnik.

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The value of gold and Bitcoin have both increased this year, but the latter has seen huge gains amid volatility in the cryptocurrency markets. While the gold price has increased by 8.3 percent since the beginning of the year, Bitcoin has increased a whopping 119 percent.

According to Coindesk, Bitcoin was trading at $2,186 on Thursday, despite a steep two-day decline that had taken 20 percent off the price. 

Meanwhile, gold was trading at $1,254 per troy ounce, having declined somewhat due to the US Federal Reserve's decision to raise interest rates on Wednesday.

Financial analyst Philip Klinkmueller of Hopf Klinkmüller Capital Management told Sputnik Deutschland that the relative security of gold makes it a better investment for people looking for somewhere secure to put their money.

"If the investor is trying to guarantee as far as possible the security of his investment, they should buy real precious metal like gold. However, as an investor he should also be aware that it's not possible to completely guarantee the growth of his investment," Klinkmueller explained.

"It is also possible to speculate on gold to make a profit. Is the investor willing to speculate on the price fluctuations of gold? Is he willing to speculate on gold mines, for example, on the HUI Index? All these questions are important for an investor to consider before they start investing."

The HUI Index, also called the AMEX Gold BUGS (Basket of Unhedged Gold Stocks) Index, is a portfolio of 15 major gold mining companies which don't hedge their gold production beyond a year and a half. It offers investors the opportunity to make money from near-term movements in gold prices.

However, Klinkmueller advised that investing in gold has some downsides.

"Ultimately, I am investing in a vehicle that is very immobile. If I make an investment in gold, I am making myself dependent on certain factors. If I hold large amounts of gold, it is always a matter of some effort to sell, store and transport it," Klinkmueller said.

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Jochen Stanzl, head market analyst for Germany and Austria at CMC Markets in Frankfurt am Main, told Sputnik that the price of gold has an inverse relationship with the US dollar, which makes gold investors depend on the value of the US currency.

"We do not advise buying physical gold as a speculative asset. Gold should always serve only to secure already-existing assets. We also advise against buying single stocks in the gold segment because there are very high default risks." 

However, Stanzl added that," If you are looking for a reliable place to securely store your money, you can't go wrong with gold."

Turning to the Bitcoin crypto-currency, Stanzl said that the value is difficult to determine because it is a future-oriented stock with a lot of volatility due to speculation.

"I think with Bitcoin there is a lot of speculation, the current situation reminds me of the gold market in 2012, when the gold price rose by over 100 percent, from $1,000 to $2,000 per ounce. Then, a lot of people were talking about the possibility of a large speculative bubble. Now a lot of people are wondering, 'Can the Bitcoin bubble also burst?' I am a bit disturbed by the emotionality of the Bitcoin discussion," Stanzl said.

"The crypto-currency is future-oriented, but also a very speculative instrument," which is demonstrated by volatile changes in its price. Nevertheless, cryptocurrencies have good investment prospects in the current climate.

"Bitcoin embodies the technology of 'blockchain,' the opportunity for decentralized, cheap and fast transactions. This is a simple, but high-tech payment option. In London, people are still buried in checks, with payment taking four days. It's too slow for the modern world," Stanzl said.

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