Cash Is Trash, Dump Gold, Buy Bitcoin!
Dollar’s Slump Propels Global Peers Toward Multi-Year Peaks. Cash Is Trash, Dump Gold, Buy Bitcoin!
The dollar’s protracted decline is spurring Group-of-10 peers toward multi-year highs.
The Bloomberg Dollar Index is poised for a 2.7% drop this month, taking its fall since a March peak to 12%. China’s economic rebound and bets on a successful roll-out of vaccines are bringing key levels into play for currencies from the euro to the Aussie and the Canadian dollar.
“The improving outlook for global growth, combined with strong signals from the Fed that it will maintain loose monetary policy well into the economic recovery, have been encouraging a weaker dollar,” said Lee Hardman, a strategist at MUFG Bank in London. “Asian and commodity-related currencies have also been benefiting from the outperformance of China’s economy.”
It’s a turnaround from earlier this year, when the dollar benefited from its status as the ultimate safe haven during the height of the pandemic turmoil in March. Citigroup Inc. sees the greenback dropping as much as 20% in 2021 as vaccines become widely available, while Goldman Sachs Group Inc. favors shorting the currency against the Australian and Canadian dollars.
Record Virus Infections In The U.S. And Division Over A New Stimulus Are Also Adding Pressure On The World’s Reserve Currency.
Among The Key Levels That Are Approaching:
* The Euro Is Approaching A Key Psychological Level Of 1.20 Against The Dollar. If It Breaches 1.2011, The Common Currency Would Reach Its Highest Since May 2018
* The Canadian Dollar Is Closing In On C$1.2929 Against The Dollar, A Level Not Crossed Since October 2018
* The Australian Dollar Is Nearing Its Year-To-Date High Of 74.14 U.S. Cents. If The Commodity Currency Breaks That, The Aussie Would Reach Its Strongest Levels Since August 2018
* The Pound Rising Past $1.3482 Would Put It At Its Strongest Since December 2019
* The Swiss Franc Strengthening Through 0.8983 Per Dollar Would See It At Its Strongest Since 2015
* In Asia, The Risk-Sensitive Korean Won Is On Track To End November 2.6% Higher Against The Dollar For Its Sixth-Straight Monthly Decline. It’s Approaching The Key 1,100 Psychological Level — A Milestone Last Seen In June 2018
“The dollar has come under pressure as risk sentiment stays buoyant — it started at the end of the U.S. election, and was then powered further by the vaccine news,” said Alvin T. Tan, head of Asia FX Strategy at RBC Capital Markets. “The weakness has further to run.”
Realization ‘Cash Is Trash’ Could Soon See Bitcoin Price Hitting $500,000, Says Tyler Winklevoss
The Winklevoss twins see bitcoin’s market value one day hitting $9 trillion in the future.
That is Tyler Winklevoss on CNBC Monday morning explaining his bullish outlook for bitcoin, the world’s most popular and most controversial cryptocurrency.
Appearing on the business network Monday, with his business partner and twin Cameron, Tyler explained the merits of bitcoin and why the blockchain-underpinned asset could one day change hands at around $500,000, boasting a market value of some $9 trillion, though he didn’t provide a specific timetable for such a surge in the interview.
“We think bitcoin’s here to stay,” said Tyler, who explained that his prediction for much higher prices for bitcoin are based on a number of factors but not least of all the recognition by high-profile investors, including Paul Tudor Jones and Stanley Druckenmiller, who have recently “extolled the virtues” of the nascent asset, which was created in 2009.
Cameron on Monday said that bitcoin is “really an emergent store of value” and “just needs to be better than gold” to see its overall value climb over time.
The comments from the prominent bitcoin bulls come as the asset was staging a fresh assault on records after a Thanksgiving tumble saw it skid by more than 10%, amid fears of tightened regulation and concerns that it the crypto had risen too far and too fast.
At last check, bitcoin prices on Monday were up 5.3% at $19,142, after touching a recent nadir at $16,714 on Thanksgiving, according to CoinDesk.
Bitcoin’s stratospheric rise comes as the Dow Jones Industrial Average DJIA, -0.90% is up 5% so far this year, the S&P 500 index SPX, -0.46% has gained over 12% during the same period and the Nasdaq Composite Index COMP, -0.06% has advanced 35% in the year to date. Gold GOLD, +1.98%, meanwhile, has climbed 19% thus far this year and is staging a reversal of much of its rally as viable COVID-19 vaccines emerge.
Tyler said that “thoughtful” regulation is already baked into the price of bitcoin and predicted that it will be the best-performing asset of the next 10 years after enjoying a historic rally since its inception 11 years ago.
“If bitcoin can be used as a currency, then its [value] is even higher,” said Tyler, who runs Gemini, the digital-currency exchange, that he founded with his twin brother.
The duo have reinvented themselves as bitcoin pioneers, using proceeds from a legal settlement with Facebook Inc. FB, -0.30% over who came up with the idea for the social network run by CEO Mark Zuckerberg.
Gold Bug Says 2021 Will Be A Big Year For Bitcoin And Ethereum
He believes that rising adoption will drive Bitcoin higher next year, and that DeFi will have a similar effect on Ethereum.
2021 is shaping up to be a tremendous year not only for gold but for cryptocurrencies as well, according to Frank Holmes, CEO of U.S. Global Advisors.
In a Monday interview with Kitco News, Holmes said he expects digital assets such as Bitcoin (BTC) and Ethereum (ETH) to perform exceptionally well alongside gold. He believes that these digital assets are enjoying higher adoption because of their underlying value drivers.
Regarding Bitcoin, Holmes Felt That More People Are Embracing The Digital Asset In A Continuation Of A Multi-Year Trend:
“The number of wallets, people that are embracing bitcoin, that’s been growing for the past three years. Nice steady growth.”
Although many in the crypto industry liken Bitcoin to gold, Holmes said BTC isn’t being fueled by the same macro drivers as bullion. Rather, Bitcoin’s rocket fuel is coming from this past May’s deflationary halving event.
“If tomorrow, if all the gold mines in the world said we’re going to cut supply by 50%, I can assure you gold will be at $10,000.”
“It’s a supply-demand function,” Holmes concluded. Following the May halving, the number of newly mined BTC entering the market fell to around 900 per day — and this supply has been quickly absorbed by institutions and mega-corporations.
Ethereum, meanwhile, continues to benefit from the latest developments in decentralized finance, or DeFi. In terms of total value locked, the DeFi ecosystem is worth over $14.6 billion. Ethereum is the building block for much of that activity. The market capitalization of DeFi coins is currently $18.2 billion, according to CoinMarketCap.
In terms of gold, Holmes expects a “two-standard deviation” move for precious commodity — a move that could send prices between $400 and $800 higher in the next 12 months.
“That would take us from $2,200 to $2,600,” he said.
Gold futures broke out on Monday, climbing $26.40 to $1,866.40 a troy ounce on the Comex division of the New York Mercantile Exchange.
Bitcoin’s Market Cap Will Flip Gold: Winklevoss Twins
The Winklevoss twins have urged attendees of the Singapore Fintech Festival to educate themselves on Bitcoin, predicting BTC’s market cap will flip that of gold.
Speaking during the Singapore Fintech Festival 2020 on Dec. 7, pioneering Bitcoin (BTC) investors Cameron and Tyler Winklevoss reaffirmed previous forecasts that Bitcoin’s price will eventually exceed prices of $500,000 per Bitcoin.
The twins noted that their $500,000 prediction is predicated on the assumption that Bitcoin’s market cap will increase by 40 times to surpass gold’s roughly $9 trillion market cap in the future.
Cameron pointed to the “tremendous amount of money-printing going on” in debt and fiat regimes, and concerns surrounding inflation as driving up demand for “hard assets” like gold and Bitcoin.
Cameron states that Bitcoin offers significant advantages over gold as a monetary commodity, such as its ease of transfer and immunity to external forces influencing the rate of its production.
Despite their bullish outlook, the twins noted that the crypto sector has seen starkly uneven geographical advancement, with a lack of regulatory clarity hindering the growth of business and services around the technology in many emerging economies.
However, they noted the technology’s promise of banking the world’s unbanked, noting a plan to expand their exchange Gemini into emerging regions.
The pair advocated that lawmakers utilize regulatory sandboxes to reduce the barriers faced by startups working with crypto, warning that heavy-handed regulatory requirements could stifle innovation. Cameron stated:
“Apple started in a garage in Silicon Valley, I think Facebook started in a dorm room […] you have to be careful that overhead is not so large that a lot of people can’t innovate in this space.”
Tyler also dismissed the crypto community’s “provocative rhetoric” regarding Bitcoin’s potential to render the legacy sector obsolete, asserting that the crypto industry’s growth is contingent on collaboration with banks:
“If people want to buy Bitcoin, their value right is usually not in crypto because crypto is new. So you have to build a bridge between bands and this new world of crypto and you need banks to do that.”
Despite Bitcoin’s tremendous year, Cameron predicts the sector “is still just beginning.” Tyler urged people to educate themselves regarding Bitcoin, stating:
“Pay attention to Bitcoin and crypto and educate yourself, because this is the greatest money and technological revolution since the Internet itself. It’s not a fad, it’s here to stay — and it will transform money, the Internet and so much of the world around you. And it’s just starting.”
Bridgewater’s Ray Dalio Softens Stance On Bitcoin, Says It Has Place In Investors’ Portfolios
Ray Dalio, the founder of the world’s largest hedge fund, Bridgewater Associates, has offered a more positive stance on bitcoin than in comments that made headlines last month.
In a Reddit Ask Me Anything (AMA) on Tuesday, Dalio said he thought bitcoin and other cryptocurrencies had “established themselves” over the last 10 years and were interesting “gold-like asset alternatives.”
The billionaire hedge-fund manager also noted that cryptocurrencies share similarities and differences to gold and various “limited-supply, mobile (unlike real estate) storeholds of wealth.”
Bitcoin “could serve as a diversifier to gold and other such storehold of wealth assets,” said Dalio. “The main thing is to have some of these type of assets … including stocks, in one’s portfolio and to diversify among them.”
Dalio comments are a deviation from a month ago when he said there are three main problems with bitcoin and other cryptocurrencies: a lack of venues accepting digital assets as payment, price volatility and the potential for governments to “outlaw” them.
During the AMA, Dalio also said, when comparing bitcoin to gold, he had a “strong preference” for assets central banks will want to hold and use to exchange value.
UK investment Manager Shifts Allocation To Bitcoin From Gold In ‘Defensive Move’
The institutional flood into BTC continues.
A United Kingdom-based investment manager has added Bitcoin (BTC) to its portfolio, underscoring the ongoing institutional shift toward digital assets.
Ruffer Investment Company Limited, an investment manager with shares listed on the London Stock Exchange, has disclosed its new Bitcoin strategy.
In a performance update and manager comment posted on Tuesday, Ruffer said it has added Bitcoin to its Multi-Strategies Fund, primarily as a defensive move against the “continued devaluation” of fiat money. The fund now holds roughly 2.5% of its assets in Bitcoin.
The allocation was made in November after Ruffer reduced its exposure to gold in favor of BTC.
The Firm Said:
“We see this as a small but potent insurance policy against the continuing devaluation of the world’s major currencies. Bitcoin diversifies the company’s (much larger) investments in gold and inflation-linked bonds, and acts as a hedge to some of the monetary and market risks that we see.”
Founded in 1994, Ruffer has 20.3 billion euros ($27.2 billion) in assets under management as of Nov. 30. The firm has roughly 6,600 clients worldwide compromised of individuals, families, pension funds and charities.
Ruffer’s move echoes a recent call by JPMorgan Chase that Bitcoin is quietly eating gold’s market share. In a note to clients that was released last week, quantitative strategies led by Nikolaos Panigirtzoglou said Bitcoin adoption could lead to “structural headwinds” for gold.
The Strategists Wrote:
“If this medium to longer-term thesis proves right, the price of gold would suffer from a structural headwind over the coming years.”
2020 has gone down as a transformative year for Bitcoin, with firms like Grayscale, PayPal, MicroStrategy and MassMutual rewriting the narrative on digital assets.
Crypto pioneer and ShapeShift CEO Erik Voorhees believes powerful institutional players will shield assets like Bitcoin from government overreach. With major institutions in play, the Bitcoin market is forming a natural “bulwark” against intrusive regulations.
Investment Firm Jefferies ($51 Billion Assets Under Management) To Buy Bitcoin And Dump Gold
Jefferies is the latest investment company that plans to buy Bitcoin after reducing its gold holdings. It supports the narrative that people are moving their capital from gold into the top digital asset.
An official of the billion dollars investment firm unveils the future plans for purchasing the flagship cryptocurrency. Christopher Wood, the global head of equity strategy at Jefferies, says that the company is buying Bitcoin after dumping some amount of gold. The exposure to cryptocurrency will increase if the top cryptocurrency witnessed a price correction after recording an all-time high value.
Reduction of Gold From Portfolio
According to Wood, it will happen for the first time in years that the firm will add Bitcoin by releasing gold, which represents a 50% portfolio of Jefferies. He said:
“The 50 percent weight in physical gold bullion in the portfolio will be reduced for the first time in several years by five percentage points with the money invested in Bitcoin. If there is a big drawdown in bitcoin from the current level, after the historic breakout above the $20,000 level, the intention will be to add to this position.”
As per the data of Q3, the investment company is holding $51 billion in assets under management. Per the report, the BTC holdings will be transferred into a “long-only global portfolio.”
As per the portfolio, the gold allocation will reduce from 50% to 45% by dedicating a 5% allocation to the top digital currency. 30% allocation of the portfolio is in the “Asia ex-Japan equities,” while 20% is in the mining stocks of gold.
However, Wood claims that gold is not going anywhere, but its adoption would increase because the central banks’ policies will increase inflation.
Over this initiative, market analysts Bruce Ng and Juan Villaverde believe that the flagship cryptocurrency has a lot of potential, and the entry of big institutions in the digital space would push its price value as well as market cap upward.
They draw a scenario that if 10% of the value from government bonds ($30 trillion) goes into both top hedge assets, including Bitcoin and gold, then $3 trillion will add into the market caps of both assets.
“$1.5 trillion going into gold – which is 15% of gold’s market cap (now about $10 trillion). And…$1.5 trillion going into Bitcoin – which is 4.4 times its market cap (now about $338 billion).”
Jefferies’ Wood Cuts Gold Exposure In Favor Of New Position In Bitcoin
Christopher Wood, global head of equity strategy at investment firm Jefferies, cut his exposure to gold for the first time in years in favor of bitcoin, Business Standard reported.
* Wood will be cutting the gold position in his long-only asset allocation for U.S.-dollar-based pension funds to 45% from 50% and initiating a 5% holding of bitcoin (BTC), the report said.
* Wood, while remaining bullish on the yellow metal, said he’ll add more BTC to the fund should the cryptocurrency drop significantly.
* The head of equity strategy had previously refrained from investing in BTC out of a fear of hacking and that it could have been declared illegal due to its sometimes use in nefarious purposes, the publication said.
* The remaining allocations in the fund are a 30% weighting in Asia ex-Japan equities and 20% in unhedged gold mining stocks.
* Wood is looking for a “dramatic cyclical recovery” after the pandemic subsides, Business Standard said.
Bitcoin Hits All-Time High Against Gold As Haven Battle Rages
BTC has hit another milestone, this time against gold bullion, the world’s oldest reserve asset.
Bitcoin price claimed another all-time high on Friday, this time against gold, offering further confirmation that demand for digital assets is on the rise.
As Bitcoin (BTC) zipped past $29,000 on Friday, the digital currency reached a high of 15.40 gold ounces, surpassing the previous peak from December 2017, according to MarketWatch data.
According to U.Today, the Bitcoin-gold rate peaked at 15.62 ounces during the early morning.
2020 was a watershed year for Bitcoin as institutional adoption helped catalyze a bull market unlike any we’ve seen thus far in its 11-year history. The largest cryptocurrency by market capitalization, Bitcoin saw a massive increase of around 300% in 2020.
Gold also posted impressive gains for the year, though they paled in comparison to Bitcoin’s meteoric rise. The yellow metal’s spot price ended the year on a 25% gain.
Bitcoin’s biggest proponents believe the digital currency is eating away at gold’s market cap as investors opt for the efficiency, portability and proven scarcity of the asset. Astonishingly, that view is also shared by JPMorgan Chase analysts, who believe Bitcoin’s digital gold narrative is drawing capital away from precious metals.
Some believe that Bitcoin’s supply squeeze could send prices higher over the course of 2021. As Cointelegraph recently reported, digital asset manager Grayscale bought up nearly three times the BTC mined in December. Demand from PayPal, Cash App and others has also contributed to an apparent supply shortage of BTC.
Bitcoin Seen Topping $50,000 Long Term As It Vies With Gold
Bitcoin’s price could exceed $50,000 over the longer term as the digital asset vies with gold for investment flows, according to cryptocurrency exchange Luno and brokerage OSL.
“We’re talking about Bitcoin over the next three, five, 10 years slowly inching away at gold’s market capitalization,” Vijay Ayyar, head of Asia Pacific with crypto exchange Luno in Singapore, said in an online question and answer session with Bloomberg Tuesday. If that happens, “you are way over $50,000,” he said.
Bitcoin quadrupled last year, eventually reaching an all-time high of almost $42,000 in early January before sliding back by about $10,000. The rally split opinion, with some commentators pointing to increased interest from long-term investors and others citing speculative buying.
While Bitcoin has been popular for trading, “increasingly the new to market money that we are seeing is buying Bitcoin as a hedge to inflation and as digital gold,” said Matt Long, head of distribution and prime brokerage at digital-asset platform OSL in Hong Kong.
Predicting a price for Bitcoin is challenging but it’s likely to rise longer term as funds and family offices assign 0.5% or 1% of their portfolios to it, Long added.
Bitcoin, which has climbed 9% this year, was trading at about $31,500 as of 7 a.m. in London on Tuesday.
Gold Demand Hit An 11-Year Low In 2020
Global demand for gold fell last year to its lowest level since 2009, as the coronavirus pandemic drove weakness in consumer demand for the precious metal, the World Gold Council reported Thursday.
Total gold demand fell by 14% in 2020 to 3,759.6 metric tons — the first annual level below the 4,000-metric-ton mark since 2009, according to data from the organization.
“While demand improved steadily from the severely depleted Q2 total, consumers across the world remained at that mercy of coronavirus lockdowns, economic weakness and high gold prices,” the World Gold Council’s Gold Demand Trends report said.
Gold jewelry demand declined by 34% in 2020 to 1,411.6 metric tons, a record annual low. However, investment demand for gold surged 40% to a record annual high of 1,773.2 metric tons, with global gold-backed exchange-traded-fund annual inflows reaching a record 877.1 metric tons in 2020.
Global holdings in gold-backed ETFs ended the year at a record of 3,751.5 metric tons, the report said.
On Wednesday, February gold GCG21, -0.17% settled at $1,844.90 an ounce, down $6, or 0.3%, for the session.
Gold Set For Worst Start To Year In A Decade As Dollar Ascends
Gold edged lower after the Federal Reserve kept its monetary policy unchanged without promising any more aid, supporting the dollar and putting bullion on course for the worst start to a year in a decade.
The Fed repeated it would maintain bond-buying at $120 billion per month until “substantial further progress” toward employment and inflation goals has been made. After the central bank’s first meeting of 2021, Chair Jerome Powell said it would take “some time” to achieve the threshold for altering purchases, making clear the central bank’s not close to tapering them.
Bullion has lost about 3% this month, its worst January performance since 2011, amid gains in the dollar and Treasury yields and as traders weighed prospects for an economic recovery. Powell said that widespread availability of vaccines was grounds for optimism, noting that “several developments point to an improved outlook for later this year.”
“If I look at gold, it seems the market was looking for a more dovish Fed,” said Giovanni Staunovo, an analyst at UBS Group AG. “I still believe we will see a higher price this quarter, supported by low(er) U.S. real rates and a weaker U.S. dollar.”
Spot gold lost 0.3% to $1,838.22 an ounce by 1:31 p.m. in London, after ending 0.4% lower on Wednesday. Silver was little changed, while palladium and platinum fell. The Bloomberg Dollar Spot Index rose 0.3%, touching a one-month high.
CME Chief Economist Hints Bitcoin Is Gaining Ground On Gold As A Hedge
Why can’t we be friends? The gold versus Bitcoin debate rages on.
CME Group’s chief economist and managing director, Bluford Putnam, recently acknowledged that Bitcoin is competing with gold as a hedge against inflation.
“Gold appears to have an emerging competitor in Bitcoin,” told Bloomberg for a video released on YouTube on Tuesday. “Given the current price range for gold, it is likely that increased production will be a feature of 2021,” he said.
Gold’s supply is less clearly defined than Bitcoin’s. Built into the asset’s code, BTC touts a set maximum limit of 21 million coins, dispersed into circulation on a steady mining schedule. Putnam mentioned this characteristic of Bitcoin in his rationale, although he also noted the coin’s volatile nature.
“Please be aware, fixed supply does not mean less volatility,” he explained. “Indeed it can mean the opposite,” he said, adding:
“When the supply is relatively inelastic, then the dynamics of shifting patterns with demand can have very large and abrupt impacts on prices. Bitcoin has illustrated this point.”
A store of value or hedge often represents a place to put value on a longer-term basis as possible protection against inflation and shifting global economic factors. Lack of correlation can be a key aspect of safe-haven assets, as noted by Investopedia.
“We’ve also noticed that gold may be losing its appeal as a hedge against global political risks,” Putnam said. “In the 2017 to 2020 period, the mostly ups and occasional downs of the gold price appear to be directly tied to Fed policy shifts more than anything else,” he added. “Since equities were responding to the same driving force, the gold-equity relationship tended to become a little more closely associated, weakening gold’s safe-haven appeal.”
Gold and Bitcoin both broke their previous all-time price highs in 2020. Gold bested its record high in July, going on to surpass $2,000 per ounce in August, according to data from TradingView.com. Bitcoin broke its record high in December, and doubled from there in the weeks following.
Proponents often argue that Bitcoin is like digital gold, but with properties that make it easier to store and transport. Industry leaders have also been known to pit the two store of value assets against each other.
2020 Saw Demand In The World’s Biggest Gold Consumer Tumble 35% VS Bitcoin’s +338.60% 52 Week Return
China’s recovery points to lunar new year boost for gold demand.
China’s economic recovery from the coronavirus pandemic may offer some solace to gold bulls, with expectations building that jewelry demand will rebound following last year’s wipe out.
Jewelry retailers on the mainland have reported strong sales in recent months, while concerns over infection have pushed some consumers online. It’s a turn around from last year’s Lunar New Year period, when surging virus cases forced stores to shorten business hours and manage time off for employees, and consumers reined in spending.
The shaky start to 2020 saw demand in the world’s biggest gold consumer tumble 35% to the lowest annual total since 2009, despite a rebound in the final three quarters. China’s Lunar New Year holiday, a traditionally auspicious time to buy gold, kicks off on Thursday.
Optimism about new year sales has improved considerably, said Nikos Kavalis, managing director at consultancy Metals Focus. He’s confident sales “will be higher year on year, given the low base in 2020 due to the pandemic.”
Still, consumption is unlikely to have returned to pre-pandemic levels. Demand may be about 30% lower than the same period in 2018 and 2019 due to the re-emergence of the virus in some provinces, said Haywood Cheung, president of the Chinese Gold & Silver Exchange in Hong Kong.
Parts of northern China recently imposed lockdowns to curb coronavirus outbreaks and the government has taken steps to discourage millions of people from making their annual trips to their hometowns. That’s likely to distort some of the traditional spending at this time of year.
“The Spring Festival is generally the peak season for gold jewelry sales, mainly because people want to bring gifts when visiting relatives and friends,” said Jason Yu, managing director at Kantar Worldpanel Greater China, a data and consulting company. “However, due to the sporadic virus outbreaks this year, consumers will significantly reduce their outings.”
A stronger New Year period may also point to a more positive annual outlook. China’s demand may expand this year as policy makers have positioned domestic consumption as a priority, said Roland Wang, the World Gold Council’s managing director for China. That likely bodes well for gold demand, especially jewelry, he said.
Return To Normal
Retailer Luk Fook Holdings International Ltd. saw year-on-year same store sales sales growth of 11% at self-operated shops for its gold products in the quarter ended Dec. 31. It saw a similar rise in its licensed shops, which account for about 96% of total shops on the mainland. E-commerce business sales growth jumped 53%.
“After months of lockdown and social distancing, customers have changed their shopping habits to buy online that drove us to go further in the digital arena,” said Nancy Wong, deputy chief executive officer of Luk Fook. “Customers are moving online and live streaming has become a popular activity where customers can see the products and interact with the host.”
Shen, a company accountant who asked to only be identified by her last name, said she buys jewelry every new year as a gift for herself and 2021 will be no different.
“Whatever looks appealing, I would consider buying,” said Shen, who was wearing a gold necklace with a pendant shaped like two fish and a pair of gold earrings while browsing a jewelry store in Shanghai’s financial district. “This is my normal consumption. There is no impact from the pandemic.”
Bitcoin Buys More Gold Than Ever, With One Ounce Now Costing Under 0.035 BTC
Bitcoin (BTC) is now worth more in gold than at any time in its history as the largest cryptocurrency passes $50,000.
Data noted by markets commentator Holger Zschaepitz on Wednesday confirms that one ounce of gold now buys just 0.0352 BTC.
XAU/BTC Plumbs New Depths
Since hitting new all-time highs on Wednesday, the price of gold in Bitcoin terms became even cheaper, with one ounce costing $1,794, or 0.0349 BTC, at the time of writing.
“Bitcoin is eating gold in one chart!” Zschaepitz declared in comments.
Responding, analytics account Ecoinometrics added that gold’s underperformance versus Bitcoin simply increases if longer time frames are taken into account.
Bitcoin’s one-year risk-adjusted returns topped 270%, compared with 24% for gold, as of Dec. 28, 2020. Four-year returns contain an even starker contrast, with 2,675% versus 64% for Bitcoin and gold, respectively.
“When looking at Bitcoin vs. gold don’t zoom out too much or gold will turn into the horizontal axis,” Ecoinometrics commented, presenting accompanying charts.
Schiff Holds Out Against A Deluge Of Bitcoin Gains
Despite the figures, gold bugs continue to pit Bitcoin against the precious metal and predict disastrous consequences for those holding BTC as the correlation between the two assets has noticeably decreased since September 2020.
Among them is Peter Schiff, who in his latest Twitter spat with proponents — including his son, Bitcoin hodler Spencer Schiff — maintained that BTC/USD is destined to go to zero.
When asked whether the process would take thousands of years or longer by Bitcoin Foundation founder Charlie Shrem, Schiff replied that it should be a lot sooner.
“Serious answer — I doubt it will take anywhere near that long,” he claimed.
“But there may still be a bid in #Bitcoin for years after it collapses to near zero so who knows how many more it will take before that bid disappears completely.”
A $1 million Bitcoin, he added, was “highly unlikely.”
Spencer subsequently reminded him of a prediction he made in June 2020 in which Schiff claimed that Bitcoin was “highly unlikely” to hit $50,000.
Bitcoin Tops $55K For First Time While Gold Drops To 7.5-Month Low As Stimulus Calls Grow
While bitcoin rose, the price of gold fell to its lowest level since July.
Bitcoin continues to outshine gold amid calls for more fiscal spending to boost the U.S. economy back to full strength.
The world’s biggest cryptocurrency set a record price of $55,707.21 on Friday before settling back to $54,898.62, up 5.6% over the last 24 hours, having scaled the $50,000 mark two days prior, according to CoinDesk 20 data. Meanwhile, gold fell to $1,760 a troy ounce early Friday, its lowest level since July 6, 2020, per TradingView.
In an interview with CNBC on Thursday, U.S. Treasury Secretary Janet Yellen said that the proposed $1.9 trillion stimulus package could help the U.S. get back to full employment in a year. She added that the risk associated with delivering too little stimulus is greater than the cost of doing something big.
The Federal Reserve and the U.S. government have already pumped massive liquidity (dollars) into the system over the past 11 months to support the ailing economy. Increased fiscal spending is generally viewed as leading to inflation. Both gold and bitcoin, with their constrained supplies, are considered hedges against inflation, and so both tend to thrive in the face of more government spending or money-printing by central banks.
But that’s not what’s happening now. Gold, a classic store of value asset, is nursing losses at press time, while bitcoin is extending its bull run. Since August, the two assets have mostly moved in opposite directions, convincing the likes of payments company MicroStrategy’s CEO Michael Saylor that the cryptocurrency is a better inflation hedge than gold. The business intelligence firm has used a significant part of its treasury reserves to invest in bitcoin.
The divergence between the two has become pronounced since the start of the year, with bitcoin charting a steep rise from $30,000 to $52,000 and gold falling from $1,951 to $1,760. That has triggered speculation that bitcoin is rallying at the expense of gold.
Traditional market analysts are associating gold’s losses with the rise in the U.S. treasury yields. The 10-year yield set an 11-month high of 1.33% on Wednesday and has gained more than 35 basis points this year. With authorities calling for more spending, yields could continue to rise, keeping gold under pressure.
If the rally in bond yields continues, it could wind up hurting bitcoin as well as gold. First, it could trigger a rotation of money out of equities and into bonds. The resulting decline in the stock markets and the strength in the U.S. dollar could pull bitcoin lower.
Further, momentum funds that bought bitcoin as a store of value asset may sell if real or inflation-adjusted yields rise, as discussed earlier this week.
Also, additional bearish pressure may arise from the drop in the the global stock of negative-yielding debt. The tally has declined by $3 trillion this year to below $15 trillion – the lowest since September. A negative-yielding bond offers less money at maturity than the original buying price.
Investors typically turn toward store of value assets such as gold and bitcoin when the number of bonds offering negative yields is rising.
Bitcoin’s rally picked up the pace in the final quarter of 2020 as the global stockpile of negative-yielding bonds reached record highs above $18 trillion.
Gold Price Slump Causes Asian Shoppers To Snap Up Everything From Bangles To Bars
Gold price’s slump to near a nine-month low is drawing jewelry shoppers in Asia to hunt for bargains.
After a year of demand being in the doldrums, retailers are buying more of the precious metal to cater to people like Seema B, a 35-year-old housewife who ventured to Mumbai’s Zaveri Bazaar to get new bangles after months of putting it off. “The prices have come down a bit and the general worries about the virus have also eased,” she said.
Seema joins others in India and Malaysia who are stocking up for weddings and investment. Retail investors in South Korea are amassing bullion while Chinese demand drove sales higher over the Lunar New Year. The demand for physical gold may stem the slide in prices that have been pummeled by rising bond yields and outflows from bullion-backed exchange-traded funds.
When financial investors aren’t buying, “the physical market becomes increasingly important in setting the floor for prices,” said Suki Cooper, a precious metals analyst at Standard Chartered Bank. “The gold price floor is starting to look well cushioned.”
Spot gold dropped 0.9% to $1,729.60 an ounce on Monday. Earlier this month, it fell below $1,700 to the lowest since June, prompting more buying from consumers who were deterred by prices reaching a record of $2,075.47 in August.
Jewelers in India see the momentum lasting until the auspicious gold-buying day of Akshaya Tritiya in May. Kumar Jain, owner of U.T. Zaveri store in Mumbai, expects his sales to almost double in the January-March period from a year earlier and is optimistic about the coming quarter too.
“We have seen the best demand in the past month since the virus fear emerged in March last year, as customers came out to buy for weddings thinking prices will go up further,” he said.
A cut to the import duty has also made the precious metal cheaper in India, which imports almost all the gold it consumes. Early estimates show gold purchases surged to the highest since late 2019 in February.
In China, gold jewelry consumption is set to grow 28% in 2021, with most of the bump in the first quarter as the post-Covid recovery runs out of steam and prices rally later in the year, Metals Focus said in a report earlier this month.
Jewelry sales at big urban retailers more than doubled during the Lunar New Year holiday compared with last year, according to Zhang Yongtao, secretary general at the China Gold Association. That has pushed the local market to largely trade at a premium since mid-January, which hasn’t happened since February 2020, said StanChart’s Cooper.
Bullion dealers say premiums on kilobars have also been increasing in Singapore, Hong Kong and Thailand since February.
That is likely due to the scrap market coming to a standstill after gold prices dropped, which meant refiners are struggling to get material to make enough gold bars, said Joshua Rotbart, founder and managing partner at J. Rotbart & Co. “Having said that there is no real stress in the market and definitely premiums are not at all-time highs.”
Global Q1 Gold Demand Down 23% Year On Year
Global gold demand in the first quarter dropped from a year ago on the back of a more than 70% year-on-year decline in gold investments, according to a report from the World Gold Council released Thursday.
Total world gold demand for the quarter was at 815.7 metric tons, down 23% compared with the first quarter of 2020, though it was “on a par” with the fourth quarter of 2020, the report said.
The investment segment of gold demand fell by 71% year over year in the first quarter to 161.5 metric tons, as gold-backed exchange-traded funds saw outflows of 177.9 metric tons, compared with inflows of 299.1 metric tons the same time a year ago.
“Bargain-hunting,” however, boosted bar and coin investment by 36% from a year ago to 339.5 metric tons, according to the report.
“Lower gold prices and continued economic recovery in Q1 2020 encouraged a very positive consumer response, particularly as many countries saw a continued gradual easing of lockdown restrictions,” said Louise Street, senior markets analyst at the World Gold Council.
Prices for the most-active gold futures contract lost about 9.5% in the first quarter. The June gold contract GCM21, 0.63% settled at $1,773.90 an ounce on Comex Wednesday, and is trading more than 6% lower for the year so far.
Demand for gold bars and coins also saw a “strong recovery from last year’s pandemic-stricken Q1,” to stand at the highest since the fourth quarter of 2016, “as investors bought into the price dip,” said Street. “Growing concerns over inflation were also a driver, she added.
Still, that positive gold consumer response was “countered by significant outflows from gold-backed ETFs after last year’s record-breaking inflows,” said Street. Gold-backed ETF outflows were “concentrated in Western markets while Asian fund saw net inflows, led by China.”
The jewelry segment of gold demand, meanwhile, saw a 52% rise in the first quarter, compared with a year earlier, to total 477.4 metric ton, according to the World Gold Council report. “India and China were the main engines of this growth,” Street said.
Jewelry demand from China, in particular, more than tripled, jumping 212% to 191.1 metric tons — the highest quarterly total since 2015, the report said. It attributed the strong quarterly result to “improving domestic economic conditions, lower gold prices, and sales booms sparked by Chinese New Year, Valentine’s Day and International Women’s Day.”
The gold market also saw overall demand growth in the technology sector for three months ended March 31, up 11% year on year to 81.2 metric tons, with electronics accounting for 13% of that rise, according to the report.
Gold Hits Four-Month High Following Crypto Crash
Spot gold last week hit its highest price level since Jan. 8 after dipping to as low as $1,680 in early March.
In the aftermath of the Mid-May crypto market sell-off, gold has seen significant price recovery.
Gold prices continued to inch higher on Tuesday, hitting $1,887 per ounce at 3:00 am EDT, according to data from TradingView.
Last week, gold reached its highest price level since Jan. 8 at $1,889, marking a four-month high after gold prices dipped to $1,681 in early March. At the time of writing, spot gold is trading at $1,882, up around 0.1% over the past 24 hours.
The accelerated growth of the gold market came along with a major downturn in cryptocurrency markets that started on May 12. After topping above $2.5 trillion, the total crypto market capitalization started seeing consecutive slumps, eventually sinking below $1.3 trillion on Sunday, according to data from CoinMarketCap.
According to Bob Haberkorn, a senior market strategist at brokerage firm RJO Futures, growing gold prices could be attributed to a weaker dollar accompanied by lower United States Treasury yields. “If the data comes out substantially better than expected, that would probably be bearish for gold because the likelihood of a Fed taper will be sooner rather than later,” he said.
A number of financial analysts have drawn parallels between the trends in the crypto and gold markets, with JPMorgan experts suggesting last week that large institutional investors were dumping Bitcoin (BTC) in favor of gold.
According to the bank, the new trend reversed a major bullish market driving Bitcoin’s price above $64,000 in mid-April. At the time of writing, Bitcoin is trading at $37,111, rebounding after touching $30,000 last Wednesday.
Gold Wavers Near Four-Month High With Central Banks In Focus
Gold traded little changed near a four-month high as investors weighed higher bond yields and signs of slightly more hawkish tones from central bank officials.
Ten-year Treasury yields gained as much as 3% after earlier losses, hurting demand for non-interest-bearing bullion. Central banks are starting to tip toe away from emergency monetary settings, with South Korea following New Zealand and Canada in flagging a potential rate increase. The Federal Reserve‘s Randal Quarles said it will be important in coming months to begin discussing plans to reduce bond purchases if the economy stays strong.
The central bank comments come as gold has rallied amid signs of rising inflation and a potentially uneven economic recovery. The metal has surged about 7% this month, bringing its 14-day relative strength index to levels that some analysts said signaled it may be due for a pullback.
“Gold fell below the key $1,900 mark on Wednesday and remains on the defensive right now,” Ed Meir, an analyst at ED&F Man Capital Markets, said in a note. “Some profit taking was due given that gold’s RSI reading is still at a relatively overbought reading.”
* Spot gold slipped 0.1% to $1,895.08 an ounce by 1:22 p.m. in New York. Prices climbed to $1,912.76 on Wednesday, the highest since Jan. 8. Gold futures for August delivery fell 0.3% to settle at $1,898.50 an ounce on the Comex.
* Silver and platinum declined, while palladium advanced. The Bloomberg Dollar Spot Index was little changed.
‘It’s Fine’ To Buy Bitcoin As Gold Substitute, Says Trump ex-Treasury Secretary Mnuchin
What seems to be a full reversal on a previously hostile Bitcoin stance is tempered by Mnuchin, who added that he still wouldn’t buy BTC himself.
Bitcoin (BTC) may be a “scam” for former United States President Donald Trump, but the former Treasury Secretary appears to have made a U-turn on the world’s first and best-known cryptocurrency.
Speaking to CNBC on Wednesday, Steven Mnuchin confirmed that his perspective on Bitcoin had “evolved.”
Mnuchin: Bitcoin Stance Has “Evolved A Little”
The Trump administration was known for its dismissive tone on Bitcoin in public, and those hoping for endorsement from Trump were ultimately left disappointed.
Mnuchin himself was less than inclined to offer support during his Treasury tenure, but his most recent comments reveal a clear softening of his stance.
“I think my view has evolved a little bit, but it is pretty consistent,” he told the network.
“The first part of it is I think the underlying technology of blockchain is really incredible and has lots of different things, particularly in fintech and finance. I think as it relates to Bitcoin — if people want to buy Bitcoin as a subsititute, no different from buying gold or some other asset — it’s fine.”
Mnuchin added that he “would not want to have” Bitcoin in is his portfolio but stressed that he was not against others adopting it.
Continuing, he expressed a desire for Bitcoin to have “complete BSA and regulatory compliance.”
“As a matter of fact, under the OCC last year, we approved that banks could custodian it, and the reason we did that is because we wanted to make sure that this was becoming in the regulated world.”
His words garnered praise from Bitcoin circles, with Saifedean Ammous, author of The Bitcoin Standard, calling the changes “nice to see.”
Bitcoin Still Has Few Political Allies
Mnuchin’s perspective now sounds increasingly at odds with that of Trump’s, who last month flatly called Bitcoin a “scam” in an episode that ultimately failed to impact market sentiment.
The picture under current President Joe Biden, meanwhile, has yet to offer much to Bitcoin proponents. Treasury Secretary Janet Yellen has voiced concerns about cryptocurrency more widely, and senior politicians are at odds over how to address it.
It is not just a U.S. predicament — El Salvador passing a Bitcoin legal tender law in June drew adverse reactions from global financial bodies including the World Bank and the International Monetary Fund.
The law, which enters into effect in September, is so far without comparison anywhere in the world. Paraguay, which presented a regulatory bill on Bitcoin this week, has not revealed plans to adopt a “Bitcoin standard.”
Flash Crash Rattles Gold Markets As Bitcoin Holds Strong
Gold prices have dropped below $1,700 per ounce this morning in what analysts described as stop-loss driven selling.
Gold prices have tanked during the Monday morning Asian trading session, compounding losses accumulated over the past week.
On Monday, the price of gold quickly fell to its lowest level since March as a flash crash drove prices below $1,700 per ounce.
According to TradingView, the price of the precious yellow metal plunged to $1,690/oz during Asian trading hours on Monday. The price of gold has since posted a minor recovery, last changing hands for $1,742/oz at the time of writing.
Gold is currently down by 4% over the past seven weeks and 8.7% since trading above $1,900/oz at the end of May. The precious metal has retreated 8% in 2021 so far, and it is currently down 14.6% from its August 2020 all-time high of just below $2,040.
How the hell was I asleep for this flash crash in Gold pic.twitter.com/2Foy7WiOwB
— Chairman Everything-Will-Pump ☝™️ (@chairmanlmao33) August 9, 2021
Forex trader and chart guru Peter Brandt attributed the crash to wholesale liquidations, stating, “This has all the finger prints of a bank/brokerage house conducting forced liquidation upon a huge leverage speculator.”
He noted that the leverage ratio on the Chicago Mercantile Exchange’s gold markets is roughly 15-to-1, suggesting heavily leveraged traders are driving price action for gold.
Analysts at London trading firm City Index similarly blamed Monday morning’s crash to “stop-loss related selling in very thin market conditions.”
However, United States unemployment figures have also been a catalyst for the decline in commodity prices last week. The unemployment rate dropped more than expected to 5.4% from 5.9%, a new low of the pandemic era, according to a Bureau of Labor Statistics report published Friday. Along with the labor market and economy, the broader U.S. economy is continuing to heal. City Index concluded:
“The better jobs data sent the US dollar and US bond yields higher, never a good formula for commodities.”
With one Bitcoin (BTC) currently worth 25 ounces of gold, Bitcoin is down 28.5% from its all-time high against gold — with a single BTC having been worth 35 ounces of gold during Bitcoin’s all-time price high of nearly $65,000 in mid-April. However, 1 Bitcoin was worth 15.5 ounces of gold at the start of 2021.
At the time of writing, BTC had slumped 2% over the past 24 hours to trade at $43,667, according to CoinGecko.
Gold As An Inflation Hedge: What The Past 50 Years Teaches Us
On the anniversary of the metal’s unleashing by Nixon, gold’s believers may be disappointed by the record.
On a Sunday evening 50 years ago—on Aug. 15, 1971, to be exact—then-President Nixon interrupted “Bonanza,” one of the most popular TV shows of that era, to announce that he was ending the convertibility of the U.S. dollar into gold. Many consider it to be one of the most consequential decisions he made.
Up until this “closing of the gold window,” foreign central banks had been able to convert U.S. dollars into gold bullion at the fixed price of $35 an ounce. In theory, this had imposed a strict monetary discipline on the Federal Reserve, since inflating the money supply could have caused a run on Fort Knox, where the U.S. stored its supply of gold. And inflation did indeed jump in the years following Nixon’s decision to remove that restraint. So did the price of gold, which today is 50 times as high as it was that day.
This apparent correlation between gold and inflation has led many to believe that gold is a good inflation hedge. This belief isn’t supported by the data, however. If gold were a good and consistent hedge, the ratio of its price to the consumer-price index would have been relatively steady over the years. But that hasn’t been the case, as you can see from the accompanying chart: Over the past 50 years, the ratio has fluctuated from a low of 1.0 to a high of 8.4.
Gold is only a good inflation hedge over time frames far longer than any of our investment horizons, according to research conducted by Duke University professor Campbell Harvey and Claude Erb, a former commodities portfolio manager at TCW Group. They found that it’s only when measured over very long periods—a century or more—that gold has done a relatively good job maintaining its purchasing power. Over shorter periods its real, or inflation-adjusted, price fluctuates no less than that of any other asset.
Gold’s weakness as an inflation hedge may be even more pronounced today, Prof. Harvey says, because “gold is currently very expensive compared to its history.” The current gold-to-CPI ratio stands at 6.5, for example, nearly double its 50-year average of 3.6.
Even though the price of gold is 50 times as high as in 1971, stocks have performed even better. The S&P 500 has produced an annualized return of 11.2% since August 1971, assuming dividends were reinvested along the way. That compares with 8.2% annualized for gold.
Furthermore, the only reason gold came even this close to matching stocks over the past 50 years was its huge return during the first decade following Nixon’s announcement. Take away that decade, and gold has lagged behind even intermediate-term Treasury notes. Over the past 40 years, gold has risen at a 3.6% annualized rate, compared with 12.2% for the S&P 500 and 8.2% for the Treasurys.
This doesn’t mean gold has no role to play in a diversified portfolio, however, even assuming the future will be like the past. Because the correlation of its returns with those of either equities or bonds has often been low or even negative, its presence in a portfolio can reduce volatility. Over the past 50 years, a stock-and-bond portfolio could have improved its risk-adjusted performance by adding a small allocation to gold—around 5% or so.
Still, even gold’s volatility-reducing potential isn’t guaranteed, since gold’s correlation with stocks has varied widely over the years. In fact, there have been occasions in which gold’s correlation to the stock market has been positive, which is just the opposite of what it should be to reduce a portfolio’s risk.
One such recent occasion came during the stock market’s waterfall decline in February and March last year: Stocks of gold-mining shares dropped 39%, as measured by VanEck Vectors Gold Miners GDX -2.44% ETF (GDX)—even more than the 34% drop in the S&P 500. “What kind of safe haven is that?” Prof. Harvey asks.
The Next 50 Years
Gold’s inconsistent correlation with both stocks and inflation makes it difficult to project how it will perform over the next 50 years. An additional wild card, according to Prof. Harvey, is that gold now faces “competition it’s never had before” because of the advent of cryptocurrencies.
It is always possible that gold will be a more consistent inflation hedge in coming years. It’s just that you will have to look elsewhere than history to find support for such a possibility. Mr. Erb is cynical whether this will pose much of an obstacle to gold’s true believers, however: “The past can always be brushed aside when dreaming about how gold and inflation might move in tandem in the future.”
Gold’s swift drop to the lowest since March has highlighted a tough truth for the precious metal — there’s a growing list of reasons to be gloomy.
While Monday’s flash crash was exaggerated by a combination of technical factors and poor liquidity, the initial trigger remains true — strong U.S. jobs data showed the world’s largest economy is well on its way to recovery. That sets the stage for the tapering of stimulus by the Federal Reserve, potentially removing one of the key drivers that helped send gold to a record last year.
A strengthening dollar, plus growing expectations that inflation will prove manageable, are adding to the headwinds. Exchange-traded funds have also cut their holdings significantly this year. Gold traded 1.9% lower at $1,730.27 an ounce by 11:25 a.m. in New York, after earlier tumbling as much as 4.1%.
Investors will now turn their attention first to the U.S. inflation data scheduled for later this week, and then ahead to signals from Fed officials at the Jackson Hole conference later this month. The timing of tightening by the U.S. central bank is key, and hawkish talk from Chair Jerome Powell could spell the start of a definitively bearish market for bullion.
Gold’s drop after payrolls beat expectations on Friday was triggered by a sharp rise in inflation-adjusted Treasury yields, which determine the opportunity cost of holding the non-interest bearing metal.
But when yields dropped deeper into negative territory in the past month, gold prices failed to benefit.
That shows just how negative sentiment has become for bullion after the metal’s relatively poor performance this year. Gold is an asset that thrives on momentum, and can be left vulnerable if the price fails to rally for a long time. Further rises in real rates driven by strong economic data could spark more precipitous drops.
Whether rising prices associated with economies reopening will prove transitory or persistent has been a major theme for markets in 2021. Gold’s relationship with inflation is complicated — it’s often touted as a hedge against runaway price gains, but has historically tended to benefit mostly when they coincide with periods of high unemployment.
So far, the market is pricing in transitory inflation, as demonstrated by the falloff in U.S. breakeven rates further down the curve. That would imply healthy and controlled price increases which wouldn’t benefit gold. The consumer price index due Wednesday will prove the latest gauge for investors, and is expected to be more muted compared to previous months.
“It’s hard for it to be bullish for gold at the moment,” said Marcus Garvey, head of metals strategy at Macquarie Group Ltd. “If it does soften and show that some of the recent price gains are easing, then there’s less upward impetus for inflation. But that doesn’t really reduce taper expectations because inflation is already sufficient to be ticking the box.”
A major driver of gold’s strong performance last year was a protracted weakening of the dollar. Fast forward to 2021 and there’s signs we may see that trend reverse, putting pressure on bullion.
Strong U.S. jobs data raised expectations for Fed rate hikes, giving the dollar its biggest gain in about a month on Friday. Meanwhile money markets indicate the European Central Bank won’t tighten until at least mid-2024. That sets the stage for a stronger greenback, which would hurt gold.
Gold’s plunge earlier Monday has broken below the neckline of a weekly head and shoulders pattern that may embolden bears in the medium term. Unless gold ends the week above the neckline, which currently lies at approximately $1,760, the outlook would remain weak based on the technical analysis.
Prices also tested and broke below the 100-week simple moving average, before pulling back. This average has offered support to prices most times since the Dec 2015 low. It lies at $1,738 for this week and will be watched closely by bulls and bears alike.
“Gold is now technically toast and requires some resilience to stave off some key levels,” Nicky Shiels, head of metals strategy at MKS (Switzerland) SA, wrote in a note. “On the topside, a retaking of $1,750 would help install confidence (and hold off a move lower).”
Bullion-backed exchange-traded funds were a pillar in driving the metal to a record last year. But successful vaccine rollouts and stronger-than-expected recoveries in the western world prompted investors ranging from family offices to pension funds to cut their ETF holdings significantly this year, particularly in the first quarter.
To be sure, ETF holdings remain at historically high levels. And a rebound in gold imports in top consumer India could offer support to prices — while demand there was hammered earlier this year by the emergence of the delta variant of coronavirus, rising imports show appetite for gold may be starting to pick up.
One Bitcoin Now Buys 0.6 Kilograms Of Gold As 10-Year Returns Turn Negative
Gold disappoints on practically every timeframe while heading back toward all-time lows in BTC terms.
Bitcoin (BTC) proponents continue to poke fun at gold bugs as the precious metal’s 10-year returns flip negative.
As of Tuesday, fresh data shows tha XAU/USD traded 3.7% lower than it did on the same day in 2011.
Gold Fails To Impress — On Any Timeframe
It’s been a bad week for gold and its investors — a sharp fall on Monday has consolidated losses that have characterized much of 2021.
Starting the year at $1,941, XAU/USD was down to $1,729 at the time of writing — a year-to-date loss of 10.9%.
Whereas longer-term performance had previously saved gold from humiliation, as of this month, even a 10-year hodl is a dubious investment. On Aug. 1, 2011, the precious metal traded at $1,830, or 5.8% higher.
In the meantime, Bitcoin has vastly outperformed not only gold but every major commodity in terms of dollar gains and shows no sign of reversing to give gold any form of competitive advantage.
“A single bitcoin is now worth 21 ounces of gold. Poetic,” trading platform FTX summarized last week.
Priced in BTC, gold thus looks even weaker at just 0.038 BTC per ounce as of Tuesday. Its all-time lows of 0.02746 BTC occurred as BTC/USD hit current all-time highs of $64,500 in mid-April.
Put another way, 1 BTC now buys almost 600 grams of gold.
“It’s not digital gold!”
Perhaps unsurprisingly, gold industry members were among the few voices publicly championing the precious metal, among them Schiff Gold CEO Peter Schiff.
Blaming gold’s performance on macro market factors, the infamous Bitcoin skeptic maintained that for all its success, Bitcoin could never match it.
“Bitcoin rising as gold falls doesn’t mean it’s replaced gold as an inflation hedge,” he countered this week.
“Gold is down as traders mistakingly think the Fed will successfully fight off inflation by tapering QE and raising interest rates. Bitcoin doesn’t trade like gold because it’s not digital gold!”
His perspective runs contrary to an increasing number of non-crypto voices this year, notably investment mogul Ray Dalio and Jerome Powell, Chair of the United States Federal Reserve. The former, however, recently said that he would still choose gold over BTC.
Bitcoin Set To Replace Gold, Says Bloomberg Strategist On Bretton Woods’ 50Th Anniversary
The statement appeared as a takeaway from Blockworks’ “Bretton Woods: The Realignment” conference that gathered economists, macro analysts and investors to discuss Bitcoin.
Bitcoin (BTC) is replacing gold even as United States’ regulators attempt to disrupt its advance, said Mike McGlone of Bloomberg Intelligence on Monday.
The senior commodity market strategist credited the “digitization of money and finance” behind the Bitcoin market’s superior growth against gold, noting that the same factors helped the U.S. dollar gain dominance “rapidly and organically” over the precious metal.
McGlone’s comments appeared as takeaways from a recent three-day conference at New Hampshire’s Bretton Woods hotel, which was attended by economists, macro analysts and investors, including Fidelity Investment’s Jurrien Timmer and Morgan Stanley’s Amy Oldenburg, among others.
Bretton Woods is popular among economists for hosting the United Nations Monetary and Financial Conference in 1944, which later led to the obligation that the United States, Canada, Western European countries, Australia and Japan would tie their currencies to gold.
As a result, the new monetary establishment earned itself the title of “Bretton Woods system.”
But on Aug. 15, 1971, U.S. President Richard Nixon took the dollar off the gold standard. Many economists hailed the move, calling upon John Maynard Keynes’ benchmark opinion that the gold standard was “a barbarous relic.”
The latest “Bretton Woods: The Realignment” conference served as a metaphorical homage to the end of the Bretton Woods system while focusing on emerging financial assets like Bitcoin that threaten to displace the “dollar hegemony” to become the next global reserve asset.
In doing so, Bitcoin has directly challenged gold’s position as a traditional competitor to the greenback, which, as McGlone stated, is already happening.
#Digitalization of money and finance is happening rapidly and organically, the #dollar is gaining dominance, #Bitcoin is replacing gold and U.S. regulation is unlikely to disrupt its advance — these are our key takeaways from the #BrettonWoods: The Realignment conference. pic.twitter.com/Oy11l68Oqs
— Mike McGlone (@mikemcglone11) August 16, 2021
Five Decades Of Dollar Dominance
Princeton University economic historian Harold James argued in his July 2021 article that “digital technologies are driving a new monetary revolution that could end the greenback’s global primacy altogether,” hinting at the role of crypto assets such as Bitcoin and Ether (ETH) could play in reshaping the global economy.
The statements appeared despite the dollar’s ability to survive the worst of global economic conditions in the past five decades and emerge as the world’s reserve asset.
In detail, the so-called Nixon Shock in 1971 led to double-digital inflation in the U.S., prompting the dollar to fall by more than 50% against the Japanese yen and the German Deutsch mark. But neither currency could replace the greenback in the race to global fiat hegemony.
The dollar posted strong recovery rallies in the first half of the 1980s. It posted similar upside moves in the second half of the 1990s — during the dot-com boom and bust. The greenback also walked unharmed through the 2008 financial crisis and COVID-19-led economic distress.
Dollar Shock Ahead?
But why did the dollar survive? Bloomberg opinion columnist Niall Ferguson provided three reasons in his latest report.
First, the greenback received backing from the Federal Reserve’s higher interest rate policies to reset expectations.
Second, liberalized capital markets, led by a boom in eurodollar and petrodollar markets, boosted the dollar’s international utility, prompting foreign central banks to use it to execute international trades.
And third, the U.S. government’s power to impose financial sanctions on countries it deemed unruly to the White House’s policies — especially in the wake of the World Trade Center attacks on Sept. 11, 2001 — made the dollar a financial weapon.
But James noted that the dollar has met unprecedented economic conditions following the COVID-19 crisis. The past 18 months have seen the U.S. deficit climb to 13.4% of the gross domestic product, the second-largest since the end of World War 2.
It expects to grow higher after the $1-trillion infrastructure bill that the Senate just passed. The Congressional Budget Office reported that the stimulus would expand the budget deficit by another $256 billion within the next decade.
Meanwhile, another package worth $3.5 trillion, which focuses on anti-poverty and climate, is expected to have been enacted by the end of this year. As a result, James noted that rising deficits had reduced the dollar’s upside prospects in global markets. He wrote:
“Some dangers are already visible in the Treasury market, where there have been liquidity strains (in 2020) and a weakening of foreign demand […]
New money, therefore, may be ending the long period of dollar hegemony.”
Bitcoin Battles Gold As An Alternative To The Dollar
The Federal Reserve’s loose monetary policies have resulted in supersonic price rallies in the Bitcoin market, insomuch that the strong moves upside have beaten gold, a traditional hedging asset.
Pomp Investments partner Anthony Pompliano, a long-time advocate of Bitcoin, said in a note to clients that if one holds their wealth in dollars, bonds or gold, their investments will yield “negative real rates of return.”
“You essentially are left with bitcoin or equities, which leads you to consider an allocation to bitcoin given the high degree of volatility that will likely serve to outperform equities over a long enough time period.”
Pompliano’s statements appeared despite potential regulatory challenges for emerging digital assets, as McGlone pointed out in his Monday tweet. The crypto industry has faced a wave of attacks from Treasury Secretary Janet Yellen, Senator Elizabeth Warren and Gary Gensler, chairman of the Securities and Exchange Commission.
But McGlone noted that the hard regulations would be unable to disrupt Bitcoin’s advance against gold. Additionally, Liam Bussell, head of corporate communications at crypto trading service Banxa, noted that U.S. regulators do not wish to stop Bitcoin — they want to protect U.S. investors from fraud.
“Illegal Schemes Resulted In About 82,135 Cryptocurrency Frauds Cases In 2020 Alone,” Bussell Said, Adding:
“The US regulators that conceivably touch digital assets (CFTC, SEC and FINRA) are open to the diversification of instruments, as long as those instruments are fair and operate in a transparent manner.”
Unloved And Uninteresting, Gold Heads For Worst Year Since 2015
Gold is poised to end 2021 the same way it spent much of the year: little changed and tottering along, somewhere in the vicinity of $1,800 an ounce.
After a tumultuous start to the pandemic that drove gold to record levels in 2020, the metal famously touted as a hedge against rising prices has failed to capitalize on this year’s scorching-hot inflation.
Investors appear to have lost interest, leaving gold trading in tight ranges for weeks on end, while exchange-traded fund holdings trickle down.
Spot gold has fallen almost 4% this year, on track for its biggest annual decline since 2015. A stronger U.S. dollar and the threat of a pullback in stimulus by the world’s major central banks have deterred many investors, who saw better opportunities in surging equity markets.
The exciting booms and busts of Bitcoin — often touted as a digital equivalent to bullion — also captured attention.
Gold started the year under pressure, dropping 10% in the first quarter. Vaccine successes spurred hopes for a quick recovery from the pandemic, while President Joe Biden’s Democrats secured the U.S. Senate opened the door to pro-growth infrastructure programs and more fiscal aid.
Prices later rebounded after the emergence of new virus variants and political gridlock in the U.S. But then bullion got stuck in the doldrums.
One key factor has been a lack of interest from financial investors, who are crucial to driving gold’s rallies. Holdings in exchange-traded funds have dropped almost 9% through the year, while hedge funds trading Comex futures have kept their bullion bets muted.
While the prospect of monetary tightening hurt gold’s appeal, prices were supported by strong demand from Asian jewelry consumers and central bank buying.
The opposing drivers have left bullion hovering almost magnetically around the $1,800-an-ounce mark. While that’s a historically high price, it will be disappointing to those who enjoyed the surge to a record in 2020.
However, the equilibrium between dip buyers and sellers may not hold for long. More gains in the dollar could spell misery. On the other hand, signs of persistent, runaway inflation could finally provide the spark needed for a sustainable gold rally.
BlackRock Inc.’s Evy Hambro said earlier this month that gold could climb in 2022, driven by a combination of real interest rates, U.S. dollar performance and demand for haven assets. However, analysts at JPMorgan Chase & Co. see gold coming under more pressure as the global economic recovery continues, forecasting an average price of $1,631 an ounce for next year.
On the last day of 2021, gold edged up 0.7% to $1,827.10 an ounce by 1:38 p.m. in New York. Bullion for February delivery fell 0.8% to settle at $1,828.60 on the Comex. Silver and platinum also gained, while palladium declined. The Bloomberg Dollar Spot Index fell 0.4%.
BOE Gold Trades At Rare Discount In Sign Of Central Bank Selling😹🤣😂😅 (#GotBitcoin)
* Gold In Central Bank’s Vaults Traded $1 Below London Benchmark
* Rally In The Dollar Has Put Emerging Economies Under Pressure
Gold stored at the Bank of England has been trading at an unusually low price, in a sign that central banks may be shedding some of their holdings.
The Bank of England’s vaults contain 5,676 tons of bullion, one of the largest stockpiles in the world, which it holds on behalf of other central and commercial banks. Gold held by central banks is typically bought and sold between large institutions in bilateral trades at prices usually within a few cents of the market rate.
In recent days, however, gold at the BOE traded as much as a dollar an ounce beneath benchmark London prices, according to traders familiar with the matter. Such a big discount usually indicates a big institution like a central bank selling a sizable amount of reserves to raise US dollars or other currencies, one of the traders said.
Central banks expanded their gold holdings by almost 456 tons in 2021, according to the latest World Gold Council data, in a long-running trend driven by emerging markets diversifying their reserves away from foreign currencies. Notable buyers included Brazil, Thailand and Ireland, which made its first purchase since 2009.
Buying may slow during 2022, with financial institutions looking to hold more interest bearing dollars as the Federal Reserve gears up for aggressive monetary tightening. The greenback is on track for its biggest annual increase in seven years, putting pressure on the currencies and borrowing costs of emerging market nations.
The BOE gold discount has narrowed since the dollar-an-ounce margin, but remains large by normal standards, said the people, who asked not be identified discussing private information. Bullion has slipped more than 12% since peaking in March, leaving it close to unchanged this year.
A spokesperson for the BOE declined to comment on the discount.
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