Fast facts: FTX Crypto crisis sends gold up

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Cryptocurrency enthusiasts have had a difficult year, to say the least. The LUNA ecosystem crash in May, followed by the recent FTX collapse in early November, are just two of several cryptocurrency waves of panic that have sent investors scurrying for safe harbor. Gone are the days when many viewed sector leading assets like bitcoin as the place to park excess or primary capital for maximum protection and diversification. What’s going on, and what is the likely long-term fallout of the FTX and other digital currency market crises in general?

The best way to get a handle on the events is to take a closer look at current investment trends and examine where investors and retail traders are putting their hard-earned cash now that crypto’s security blanket has been torn to shreds. In addition to digital money devotees who plan to ride out the latest crisis by switching to DeFi (decentralized finance) exchanges, going to cash, or retreating to old-fashioned corporate stocks, many are deciding to buy gold. The FTX-induced shift from cryptocurrencies directly into the yellow metal is noteworthy. How big is the crypto-to-gold trend? Why are people jumping on the bandwagon? And, what are the key facts that everyone should know about the situation? Here are the pertinent details.

The Move to Gold is Huge, and Will Likely Continue

After the story about FTX exchange’s collapse appeared in worldwide media outlets in early November, things started happening very rapidly. In the span of fewer than two weeks, the price of sector leader bitcoin dropped by about $5,000, nearly one-fourth of its total value. In that same time period, the per-ounce price of gold shot up from $1,620 to $1,780. That’s a nearly 10% pop for the popular metal. Visit any gold trading website to see how prices are moving and how many people are choosing to open accounts and invest in the world’s most sought-after precious metal.

The transition of money flowing into the entire precious metals family and away from digital assets like bitcoin appears to be more than a short-term event. Based on the sheer size of the changes for each asset class, a 20+ percent drop for one and a 10% rise for the other, there are vast sums at stake, and the situation is not confined to one country or hemisphere. People in dozens of developed nations are taking a second look at gold for several reasons, as noted below.

Gold Could Be Amid a Delayed Post-COVID Surge

Since the pandemic of early 2020, and as inflation is heating up the yellow metal has behaved oddly. It briefly surged after the infection spread from China to the rest of the world. But then, amid expectations that the safe haven asset would continue its upward climb, it proceeded to fall and bounce between the $1,700 and $1,900 range until early this year. The unusually tepid pandemic performance of the precious metal has caused many potential buyers to wait for a triggering event to finally set things in motion. From the evidence so far, particularly as the FTX situation plays out, gold’s big day might finally have arrived.

Stocks are Ailing

It’s almost a perfect storm of events for metals enthusiasts. Alongside the crypto-related bad news, the stock market is apparently showing signs of a long-term selloff. Major global indices like the S&P 500 have been on a consistent downward trajectory since late 2021 and appear to be headed for more trouble. A full 1,000-point drop in that benchmark index by the end of 2022 is not out of the question. Historically, poor equity performance has acted as a support for rises in gold’s price, going back many decades. For a long list of reasons, individual investors wondering where to invest money like the idea of putting their money into tangible bullion and coins when paper-backed and digital investments don’t pan out. Such is the current state of the economy.

What Does 2023 Hold?

Gold’s value has already risen by a significant amount, 10%, as a direct after-effect of the more recent cryptocurrency crisis. The financial media continues to try to dissect the reasons behind FTX’s downfall, and each new revelation makes the crypto industry look worse. The founder and CEO of the company has revealed that the exchange donated large sums of money to questionable organizations since at least 2020. Other metals are benefiting from the crisis, notably silver and platinum. Those two secondary precious metals experienced similar value increases during the exchange meltdown’s immediate aftermath. The same is true for the fourth member of the precious metal family, palladium. While the four do not travel in tandem, their recent increases coincided in timing and size.