Gold-Backed Cryptocurrencies Experience Volatility Amid Global Market Sell-Off
Gold-backed cryptocurrencies, such as Paxos Gold (PAXG) and Tether Gold (XAUT), have seen a significant decline from their record highs on Friday. This downturn coincided with a global financial market sell-off that wiped out an astounding $2.5 trillion from U.S. equities in just one day, triggered by U.S. President Donald Trump announcing reciprocal tariffs.
Initially, these tokens, which are directly backed by physical gold and are designed to mirror its price, experienced a surge as investors sought refuge from the uncertainty brought on by the tariffs. Traditionally, gold is regarded as a safe haven for investors during turbulent times. However, extensive losses in equity markets often compel investors to liquidate safer assets to meet margin calls and to realize losses.
In an impressive rally, PAXG reached an all-time high of $3,191, closely followed by XAUT, which peaked at $3,190. Both tokens surpassed the spot gold peak of $3,167. Yet, this upward momentum was short-lived, as PAXG subsequently fell to $3,074 and XAUT to $3,064, reflecting a pullback in gold prices to $3,038 per ounce.
The tariffs announced earlier in the week rattled the markets with their wide-ranging implications and ambiguous targets. Investors, already on edge due to a volatile global economic outlook, reacted swiftly. The S&P 500 experienced one of its sharpest declines since the panic induced by the COVID-19 pandemic in 2020, while the Nasdaq 100 recorded its most significant single-day point drop in history, according to the Kobeissi Letter. This market rout continued into a second day, with the MSCI World Index plummeting by 4.3% on Friday after a 3.7% loss on Thursday.
Despite the recent volatility, gold-backed tokens are still up by 17% since the beginning of the year. This rally has been fueled by a combination of Federal Reserve interest rate cuts, sustained demand from Asia, and a notable wave of central bank purchases earlier in the year. In February, central banks reported net gold purchases totaling 24 metric tons, as noted by the World Gold Council.
Poland has emerged as a leader in this trend, adding 29 tons to its reserves, which now total 480 tons, accounting for 20% of its foreign exchange holdings. Other nations, including China, Turkey, Jordan, and Qatar, have also increased their gold holdings, reflecting a broader strategy among nations to bolster their reserves amidst global economic uncertainties.
