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Bitcoin’s dissimilarities with gold in many ways suggest that it cannot replace the yellow metal as a risk diversifier in portfolios, Joanne Goh, Strategist at DBS Bank, reports. Bitcoin cannot be fundamentally valued, whereas the bank’s proprietary gold model suggests gold price can hit $2,300 this year.

Key quotes

“Our base case looks for more stimulus, USD depreciation, and flattish yields as a result of the quantitative easing (QE) expansion, all of which will continue to lend good support for gold.”

“Due to its erratic trading pattern and short history, Bitcoin’s correlation to key macro indicators are untested. It is hence challenging to track the fundamental value of Bitcoin. Value is only determined by supply and demand, out of which demand is currently pure speculative.” 

“Although gold prices are also determined by demand and supply, the relationship with macro variables has been established. Our proprietary pricing model for gold indicates that ∆ Gold Price = f(-∆Bond Yields, -∆DXY, Recession Probability) with a high r-square of 32%. The model indicates that gold price can hit an all-time high of $2,300 this year.” 

“We continue to recommend gold as a hedge for lower USD, high inflation, negative real rates, and policy uncertainties. Its dual characteristics, both negatively and positively correlated to equities at extreme ends of equity performance, diversifying and appreciating at the same time makes it a perfect hedge.”