Investors Fleeing Bitcoin to Gold in Increasing Numbers
Gold continued to hold strong above $1330 this week. There was some pull back midweek on profit taking, but by Friday it got another bump on news of a possible government shut down.
While gold rose though, crytpocurrencies had another sharp drop off. This week bitcoin came down over $10,000 from its pre-Christmas high that broke $20,000. There could be a subtle correlation here; or, at least, it brings up a recent trend among crytpo investors looking for exit options. Many of those who are selling bitcoin right now are looking to transfer their profits into gold. Bitcoin can be tricky to move out of though. Sellers have to sell through intermediaries before purchasing gold (or other assets). Online trading platforms have been known to go suddenly offline, and there are often high transaction costs. Yet regardless, physical gold dealers have seen a both long and short term bitcoin buyers getting out now – some with enormous profits.
What this means for investors: On paper, gold and cryptocurrency couldn’t be more different. They represent opposite ends of the spectrum: volatility and safe haven. However gold, with its 4000 year history as a gauge of value, will always be what investors return to when they get spooked by bubbles.
Bond and Stock Market Bubbles = More Good News for Gold in 2018?
David Stockman, Ronald Reagan’s White House budget chief, issued a warning this week that gold is the only safe asset left. In his interview, he cautioned that the new tax plan will add $2.5 trillion to the public debt. His most dire warning though was about movement in the bond market:
“…By the fall (of 2018), they (the Federal Reserve) will be shrinking their balance sheet by $600 billion a year. What that means in plain simple English is that they (the Fed) are dumping $600 billion a year of existing bonds into the market just as Uncle Sam will be attempting to borrow $1.25 trillion more. Now, if you don’t think that is a financial collision waiting to happen, then I am not sure what would be.
We are heading for a thundering collision in the bond market that will drive yields upward far more than the market is expecting. The stock market operates on the illusion of permanently low interest rates. When interest rates start to rise, everything is going to come apart because cheap debt has been priced in forever, and we are heading for far more expensive debt. . . . Bond prices are going to collapse when yields begin to rise. . . . Stock prices are going to collapse big-time when the underlying predicate of cheap debt, massive stock buy backs and M&A deals and everything else supporting the market today finally reverses.”
What this means for investors: The financial crisis that Stockman is predicting might seem like a depressing prospect – rightfully so. Gold gives investors peace of mind during such times though – hence Stockman’s praise of it as the only safe asset to buy right now.
Gold Has Room to Run with Global Demand on the Rise
Although this week gold eased back some from its New Year rally, strategists are seeing multiple reasons for it to continue this year. One analyst even predicts it reaching $1,400. January and February are also historically the strongest months for gold, so there could be some pull back before that higher climb. However, a weaker dollar and a bearish bond market could continue to drive metals all year. Global demand is another significant factor that will boost gold. Demand in China especially continues to stay strong.
What this means for investors: A smart strategy is to watch for the dips and buy. Gold is still nowhere near its peak. The unraveling bond market and weakening dollar will eventually break the stock market rally. Investors are starting to see this and looking for exit options into safer havens.
Silver Could Be Set to Soar in 2018
Good news for gold in 2018 will be good news for silver as well. In fact, right now silver might have some catching up to do. The gold/silver ratio has averaged about 63.8 for the last ten years, but right now it’s sitting at 78.1. This means it is historically speaking undervalued right now. Silver is traditionally much more volatile than gold, so given the volatility, its current under-performance, and the potential for gold right now, silver is in an optimal position to start a run up. When gold demand increases, silver demand inevitably follows.
What this means for investors: As more investors start positioning into gold to protect their portfolios, silver will eventually catch up. Furthermore, silver has a high industrial demand that gold does not. There are multiple reasons to be bullish on silver right now, and while it is approaching a break out and prices are low is a perfect time to buy.
Read our latest original article to see what the gold investor should know about cryptocurrency
Bitcoin and cryptocurrency are undoubtedly a hot topic right now. How exactly the virtual, unregulated “currency” works though can be complicated to understand. Check out our original article that breaks down bitcoin mining, blockchain technology, and their future implications for gold, money, and society.
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