What about the volatility of gold and Bitcoin?

The price of Bitcoin fell hard last week, losing about 20% of its value from its high. That seems like a sharp drop, but such price drops are not rare for the virtual currency. In the past ten years, there have already been sixteen corrections of more than 30%. This makes Bitcoin much more volatile than gold and equities, which rarely show a price drop of such magnitude. This makes the virtual currency seem more like a speculative investment than a safe alternative for your savings. How can you benefit the most from it? 

Bitcoin is a relatively new investment that has only really broken through to the general public in recent years. Several banks and financial institutions have developed new investment products around Bitcoin, making it easier for asset managers and individuals to hold a position in the virtual currency. There will also be a Futures market for Bitcoin, where traders can speculate on the price or hedge a position in the cryptocurrency. As a result, Bitcoin is slowly but surely becoming a fully-fledged financial instrument.

Gold vs. {p12}} Volatility

In recent years, the virtual currency has achieved spectacular returns, as the price has gone upside down many times. Investors had to be able to take a beating, because there were also periods when the price fell sharply. In that respect, gold was a less risky investment, as the precious metal has shown much less volatility in recent years. In fact, gold's volatility in recent years has been even lower than that of the S&P 500, the main stock index in the United States.

Gold turned out to be a safe haven par excellence, because at the beginning of the corona crisis, the precious metal experienced much smaller price fluctuations than stocks and Bitcoin. In the space of a month, stock prices fell more than 30%, while the price of Bitcoin halved. The Gold price at that time also went down, but the so-called drawdown remained limited at the time. Also, the price of the precious metal recovered much faster than the prices of stocks and Bitcoin. Gold thus fulfilled its role as Hedge and if Diversification in the investment portfolio.

Volatility of Bitcoin, gold and stocks

Bitcoin yielded higher returns than gold and stocks, but also experienced sharp price declines

Diversification ensures higher returns

Investing in gold is a way to protect your assets from currency depreciation, but there are also periods when the precious metal underperforms other investments. That is why it is always advisable to spread your assets across different asset classes. The precious metal should not be missing from a well-diversified investment portfolio, because it offers protection against currency depreciation and because it usually provides a positive return in the event of turmoil in the financial markets.

For the optimal risk/return ratio, it is wise to consider other investments in addition to gold. Think, for example, of a mix of stocks, real estate and cryptocurrencies. In a period of economic growth, these investments are likely to outperform the precious metal. If the stimulative policies of governments and central banks lead to a significant increase in inflation, precious metals are likely to benefit as well. If you are looking for an alternative to the savings account with negative interest rates, gold is certainly worth considering due to its relatively low volatility.

Disclaimer: Holland Gold does not provide investment advice and this article should not be considered as such. Past performance is no guarantee of future results.

The image above this article was taken from QuoteInspector and is freely available under the Creative Commons license.

This contribution was made from Geotrendlines