In response to rising geopolitical tensions in the Middle East, the price of PAX Gold (PAXG), a digital asset backed by gold, surged significantly over the weekend. This move contrasted starkly with the performance of Bitcoin, which exhibited a notable negative correlation to PAXG, raising questions about its effectiveness as a geopolitical hedge.
PAXG’s Market Response
PAXG, issued by Paxos, saw its price climb to a high of $2,923 on Saturday, reflecting a substantial premium of over 20% compared to the closing market price of physical gold, which stood at $2,342.90 per ounce on Friday. As of now, PAXG continues to trade at a premium, with a current price of $2,471. The token, with a market capitalization exceeding $446 million, is the second-largest gold-backed digital currency, trailing only behind Tether Gold (XAUT).
Bitcoin’s Performance
Concurrently, Bitcoin and other major cryptocurrencies experienced downward pressure. The sell-off coincided with Iran’s attacks on Israel, which were retaliatory measures against a suspected Israeli assault on an Iranian consulate in Syria. These developments have intensified market scrutiny of Bitcoin’s role as a safe-haven asset.
Analyst Insights and Market Implications
Goldman Sachs analysts recently adjusted their year-end gold price forecast from $2,300 to $2,700, citing strong momentum and a lack of significant engagement from retail investors to date. This bullish outlook on gold stands in contrast to Bitcoin’s recent 10% decline over the past month.
Bob Elliot, former Bridgewater Executive and CIO at Unlimited Funds, critiqued Bitcoin’s function as a geopolitical hedge based on its recent trading patterns. On X, Elliot noted, “Bitcoin may be many things, but it is not a geopolitical hedge. This weekend was another good empirical test. BTC traded with a near-perfect negative correlation over the last day to PAXG, a gold-backed token. If anything it’s becoming an even worse hedge over time.”
Market Watchers React
The distinct divergence in the performance of PAXG and Bitcoin has caught the attention of market watchers and traditional financial analysts, who are now using Bitcoin’s market behavior as a barometer for broader economic sentiment. Andy Constan, founder of Damped Spring, commented on X about the broader implications: “And so now everyone who isn’t involved in crypto is watching BTC to gauge the market impact of war cuz it’s the only thing that’s open when drones fly.”
