The cryptocurrency market is witnessing a surge in gold-backed tokens as investors seek safe-haven assets amidst rising precious metal investment demand.
Gold-Backed Cryptos Outperform as Precious Metal ETF Inflows Near Three-Year High
Gold Prices Reach New Heights
The price of gold has surged nearly 11% so far in 2025, with a staggering 43% increase over the past 12 months.
The gold price is influenced by supply and demand, interest rates, inflation, and currency values.
Central banks and investors also impact the market through buying and selling.
The 'LBMA sets the global benchmark for gold prices.'
Gold reserves and production levels affect the price, with major producers like China, Australia, and Russia contributing to the market.
Historical data shows that 'gold prices have increased over time due to inflation and economic uncertainty.'
Growing Demand for Physical Gold and its Impact on Crypto Market
ETFs backed by ‘physical gold’ have experienced their largest weekly inflow since March 2022, reaching an impressive 52.4 tons valued at approximately $4.9 billion. This significant influx of physical gold is being driven by geopolitical tensions and uncertainty surrounding tariffs.
Gold demand is a significant driver of the global gold market.
According to the World Gold Council, annual gold demand averages around 4,000 tonnes.
Investment demand accounts for approximately 50% of total demand, driven by central banks and individual investors seeking safe-haven assets.
Jewelry demand is another major contributor, particularly in India and China.
Industrial applications, such as electronics and dentistry, also drive demand.
The largest consumers of gold are the United States, China, and India.
Among the beneficiaries of this trend are PAXG (Paxos Gold) and XAUT (Tether Gold), two crypto tokens designed to track the metal’s price. These ‘gold-backed’ cryptocurrencies have outperformed the broader crypto market, which has seen a 26% year-over-year increase as measured by the CoinDesk 20 Index.
Analysis of Supply and Demand Dynamics
Data from the World Gold Council reveals that despite rising demand for physical gold, supply has barely changed. In fact, mining production in the fourth quarter of last year dropped by around two tons over the previous quarter, while hedging and recycling grew. As a result, tracked supply rose only 1% year-over-year.
Implications for the Crypto Market
The continued growth in demand for physical gold, coupled with the relatively stable supply, is having a positive impact on gold-backed cryptocurrencies like PAXG and XAUT. This trend suggests that investors are seeking safe-haven assets, such as gold, which are being reflected in the prices of these tokens.
Gold-backed cryptocurrencies are digital assets pegged to the value of gold reserves.
They aim to provide a stable store of value, similar to traditional fiat currencies.
These cryptocurrencies use gold as collateral, ensuring that each unit of currency is backed by a corresponding amount of physical gold.
This concept combines the benefits of cryptocurrencies with the stability and security associated with gold.
Gold-backed cryptocurrencies often utilize blockchain technology to facilitate secure transactions and transparent tracking of gold reserves.
Meanwhile, spot bitcoin exchange-traded funds (ETFs) have registered their largest-ever daily outflow, with investors pulling out nearly $1 billion. In contrast, spot gold ETFs continue to see large inflows, indicating a potential boon for gold-backed cryptocurrencies.
