Gold-Backed Crypto Minting Hits Three-Year High as Central Bank Buying Slows

The gold market is experiencing a notable shift, with central bank buying slowing down and demand from exchange-traded funds (ETFs) and gold-backed cryptocurrencies on the rise. The minting volume for tokens backed by gold has reached a three-year high, indicating a resurgence of interest in digital representations of the precious metal. Over the past month, more than $80 million worth of these tokens were minted, pushing the sector’s market cap up by 6% to $1.43 billion. Additionally, the monthly transfer volume rose by 77% to $1.27 billion, reflecting a significant increase in activity.

This trend mirrors broader movements in the gold market. According to the latest report, total gold demand in the first quarter of the year reached 1,206 tonnes, marking a 1% year-over-year increase and the strongest first quarter since 2016. Despite this surge, central bank purchases fell to 244 tonnes, down from 365 tonnes in the previous quarter. Gold ETFs played a pivotal role in this shift, with investment demand more than doubling to 552 tonnes. This suggests that investors are increasingly moving into the precious metal, a trend historically associated with central banks.

The inflows into gold ETFs helped push the average quarterly price of gold to a record $2,860 per ounce, up 38% from the previous year. However, the price dipped by 2.35% last week, after rising 23.5% year-to-date, while risk assets, including cryptocurrencies, rose. Spot gold is currently trading at $3,240. Traditional gold demand, such as jewelry, saw a downturn, dropping to pandemic-era lows, while bar and coin demand remained elevated, particularly in China.

The rise in gold-backed crypto minting volume can be attributed to several factors. Firstly, global market uncertainty, driven by geopolitical tensions and economic volatility, has led investors to seek safe-haven assets. Gold, traditionally a reliable store of value, has seen increased interest, and gold-backed cryptocurrencies offer the added benefits of digital asset liquidity and security. Secondly, the drop in central bank gold purchases has created a supply vacuum, which gold-backed cryptocurrencies are filling. Central banks, which have been net sellers of gold in recent quarters, are no longer absorbing the metal at the same rate, leaving more gold available for other investors.

The shift towards gold-backed cryptocurrencies also reflects a growing acceptance of digital assets in the financial markets. As more institutional investors and ETFs incorporate gold-backed cryptocurrencies into their portfolios, the demand for these assets is likely to continue rising. This trend is supported by technological advancements in blockchain and cryptocurrency, which provide a secure and transparent platform for trading and storing digital gold.

However, the increased minting volume of gold-backed cryptocurrencies also raises questions about the future of gold demand. While the current trend suggests a strong appetite for these digital assets, it remains to be seen whether this demand will sustain in the long term. Factors such as changes in global economic conditions, shifts in central bank policies, and developments in the cryptocurrency market could all impact the demand for gold-backed cryptocurrencies.

In conclusion, the surge in gold-backed crypto minting volume to a three-year high, coupled with the drop in central bank gold buying, highlights a significant shift in the gold market. Investors are increasingly turning to gold-backed cryptocurrencies as a means of hedging against market uncertainties and benefiting from the advantages of digital assets. This trend is likely to continue as long as the underlying factors driving the demand for gold-backed cryptocurrencies remain in place.