The price of the precious metal is under much pressure as institutions adopt Bitcoin and other cryptocurrencies. Investors and big institutions have turned to Bitcoin as cryptocurrencies become the future of payment and banking.
Big institutions and investors do buy Gold to hedge against inflation in case the US dollar crashes. But Gold gives a low return even when you hold it for a long time. If you bought Gold when the price dropped to $1,500 per ounce during the 2020 pandemic, and you decided to sell it when it reached its peak at $2000 per ounce, you will only make only 33% return on your investment. Decent return though, but Gold rarely gives this kind of return. The pandemic increased market volatility.
On the other hand, Bitcoin gives much more return on your investment, even though the risk involved is high. But investors don't really care about the risk anymore, as long it gives more returns than what they have been used to.
Big institutions have started adopting Bitcoin on their platform. Amazon announced in July that it will start accepting Bitcoin on its platform and that they are looking to create their digital currency too. Hedge funds and financial institutions are converting some percentage of their funds into Bitcoin and are looking to add more.
Michael Saylor, the Co-founder of MicroStrategy, encouraged fund managers and people to buy Bitcoin and hold it for a long time as it has become property. He made this known in one of the TWITTER SPACE discussions he hosted last week.
In addition, a German law that became effective on August 2, 2021, has made it possible for institutions to invest in Bitcoin. 20% of the 2.1Trillion Euro pension funds have been invested into Bitcoin, and more are likely to be added in the future.
Alongside, all this new development on Bitcoin, the transaction fee that used to be very high has now been reduced. Much lesser than bank charges. So, it is now easy to transfer huge amounts of money around the world without worrying about transfer charges.
It is quite reasonable to think that the world, I mean big institutions and investors, are now dumping Gold for Bitcoin. And this is going to have a big effect, if it hasn't already, on the price of Gold.
The price of Gold crashed last week as buyers failed to go beyond the 1830 resistance level. Price dropped drastically from the 1830 resistance and broke the support area at 1810, giving price room to travel south. The price of Gold dropped from 1804 to 1762 on Friday, as the NFP data came out higher than forecasted.
As the market opens for the week, Gold has lost over 500 points. Price dropped from 1762 to 1677 as the market opens. Price has retraced back to 1738 as the market prepares itself for the week. More downside is expected on Gold in the coming weeks.