Bitcoin's surge overshadows epic gold run

Exactly one year ago, Peter Grosskopf, chief executive of Sprott Inc., a Toronto-based gold fund, was eagerly anticipating the next 12 months: interest rates were low and government debt was growing, strong signs in his eyes that gold would run.

Grosskopf, it turned out, was right. The price of gold reached a record high of US$2,070 per ounce on Aug. 6, before pulling back to US$1,895, leaving the yellow metal up 20 per cent for the year. What he didn't foresee was that gold's performance would be overshadowed by an order of magnitude by that of its younger cousin, the digital currency bitcoin, which soared 220 per cent in 2020 to break the US$23,000 threshold.

The disparity has breathed new life into a debate about whether gold, an ancient precious metal with a mature $10-trillion market capitalization, or the digital upstart currency born in 2009 under still mysterious circumstances and currently worth around US$400 billion, makes a better hedge against the slew of risks lining up as we head into 2021, most notably inflation and a drop in the U.S. dollar.

“I'm going to repeat my comment, that everything is aligning for gold,” Grosskopf told the Financial Post in a recent interview. “Because the money growth is not going to stop.”

But even Grosskopf, an avowed bitcoin skeptic, had to acknowledge that the cryptocurrency enjoyed a “phenomenal” year in 2020 and that his gold investors are increasingly asking to have it added to their portfolios.

Bitcoin's latest surge has come amid a slew of high-profile endorsements from business leaders such as Tesla chief executive Elon Musk and influential investors, adding legitimacy to a still young market around which there are many doubts.

After all, bitcoin, is just a string of numbers and an algorithm, whose value as a store of wealth and hedge against risk only works as more people acknowledge its value, something that is increasingly happening.

“Frankly, if the gold bet works, the bitcoin bet will probably work better,” U.S. billionaire Stanley Druckenmiller told CNBC in November.

Druckenmiller said he holds more gold than bitcoin, but both offer a hedge against inflation, which is a rising concern as governments around the world inject stimulus into the economy.