In a week that saw the broader cryptocurrency market surge, gold-backed digital assets found themselves on the outside looking in. Tokens like Paxos Gold (PAXG) and Tether Gold (XAUT), which are pegged to the price of physical gold, slipped around 1% to trade near $2,900. Meanwhile, the CoinDesk 20 Index, a measure of the crypto market excluding stablecoins, rallied an impressive 5.7%.
The underperformance of gold-backed crypto coincided with a pullback in the spot price of the precious metal. Gold retreated from its more than 10% year-to-date gain amid growing speculation that the reciprocal tariffs threatened by U.S. President Donald Trump are primarily a negotiating tactic rather than an imminent policy shift.
The prospect of retaliatory tariffs, which could take months to implement, hit safe-haven assets like gold and the U.S. dollar. However, many on Wall Street view the recent dip in gold as a potential buying opportunity rather than a sign of waning demand.
Wall Street Banks Remain Bullish on Gold
Despite the near-term volatility, major investment banks are steadfast in their positive outlook for gold. Morgan Stanley contends that the recent pullback presents an “opportunity for those looking for hedges” in an environment characterized by global reflation, escalating geopolitical tensions, and expanding fiscal spending.
This bullish sentiment is echoed by the likes of Citi and UBS, both of which have substantially raised their gold price forecasts:
- Citi strategists lifted their short-term gold price target to $3,000 and their average forecast for the year to $2,900.
- UBS hiked its 12-month gold target to $3,000 an ounce.
If these lofty projections materialize, it would bode well for gold-backed digital assets. Since tokens like PAXG and XAUT are backed by physical gold held in vaults, their value is directly linked to the spot price of the metal. A rising tide in the gold market would likely lift the boat for these crypto assets as well.
Digital Gold Yet to Shine
Despite the compelling long-term case for gold, gold-backed cryptocurrencies have yet to capture the imagination of the broader crypto market. While Bitcoin, Ethereum, and other major digital assets have soared to new heights, PAXG and XAUT have largely been stuck in neutral.
This relative underperformance may stem from the fact that gold-backed tokens are often seen more as a stable store of value rather than a high-growth investment opportunity. In a bull market characterized by soaring altcoins and sky-high returns, the staid, steady appeal of digital gold can get lost in the shuffle.
Looking Ahead
As the cryptocurrency market continues to mature and expand, the role of gold-backed digital assets remains an open question. Will they emerge as a preferred safe haven and portfolio diversifier, or will they remain a niche product overshadowed by more volatile, high-flying crypto assets?
Much will depend on the trajectory of the gold price itself. If Wall Street’s bullish forecasts come to pass, it could shine a new spotlight on this often overlooked corner of the crypto market. At the same time, gold-backed tokens will need to differentiate themselves and articulate a clear value proposition to capture a larger share of crypto investment flows.
For now, gold-backed cryptocurrencies find themselves at a crossroads, caught between a rallying crypto market and a precious metal that has yet to fully regain its luster. How this dynamic unfolds will be a key storyline to watch in the fast-evolving world of digital assets.
