Gold is trading near record highs amid a combination of economic uncertainty, geopolitical turmoil and significant central bank purchases.

As the precious metal rose above $2,500 an ounce in late August, investors are considering the factors that led to the rally and what it could mean for Bitcoin, often touted as “digital gold.”

Gold’s reputation as a safe haven asset has traditionally led to increased demand during economic crises and recessions. With major currencies falling, gold has become even more attractive to investors seeking stability. “During inflationary times, investors often choose gold over cash because of its stability,” said Rick Kanda, chief executive of the Gold Bullion Company.

Despite being promoted by some as an inflation hedge, Bitcoin has not performed as expected during recent inflationary spikes. While gold has soared, Bitcoin has struggled, particularly during the peak inflation period of 2022, when BTC fell 31% from January to June.

Geopolitical conflicts, including those in Gaza and Ukraine, have supported gold prices as investors seek a safe haven. Gold’s role as a form of “investment insurance” has led to a shift away from digital assets like Bitcoin toward physical assets like gold, especially following the 2022 crypto market crash.

Bitcoin, on the other hand, has been more closely correlated with riskier assets like the tech-heavy Nasdaq index. As geopolitical tensions rise, demand for Bitcoin tends to fall as investors’ appetite for risk diminishes.

Central banks in countries like China, Turkey, and India are aggressively buying gold. Gold’s long-term stability and performance during crises make it an attractive asset for central banks. However, Bitcoin has not received the same level of institutional support. For example, the European Central Bank has said it is unlikely to buy Bitcoin.

Gold tends to rise in value during periods of high inflation, as seen recently. Bitcoin, in contrast, has shown itself to be more of a risk-on asset, tracking global liquidity rather than providing a stable hedge against inflation. “Bitcoin is clearly not an inflation hedge and is a risk-on asset that tracks global liquidity,” said Ashwath Balakrishnan of Delphi Creative.

*This is not investment advice.