ARE GOLD AND BITCOIN TELLING US SOMETHING IMPORTANT?

Gold has broken up through a 6 year resistance level around 1350-60 and is currently trading at 1393 USD/oz, after a quick visit all the way up at 1440. That makes gold look extremely interesting right now.

I’ve been buying and advocating buying gold on and off since 2013, as insurance against “Whatever It Takes” craziness by central bankers. Three years ago, I even invested privately in a gold streaming and refinery company in Colombia, and subsequently also in it’s sold supplier Gran Colombia Gold that’s listed in Canada. Even if the price in USD hasn’t moved that much yet, it’s already been a very good investment for me in SEK. The currency insurance effect of holding gold is something Venezuelians are very familiar with.

Bitcoin too is on the move, having thawed this spring from the crypto winter of 2018. Right now, the Bitcoin price is slightly above 10k$, more than 150% higher than at the turn of the year, albeit more than 25% below the peak price a few days ago on June 26.

In both instances (gold and Bitcoin) I expect much, much higher prices (multiples higher, not measly percentages) in the coming five years (and likely much sooner than that, but you never know with politicians like Draghi, Powell, Trump and Xi at the helm)

As happy as I am about my investments/insurance positions, I am simultaneously afraid we are entering into a period of extreme financial stress, almost to the point that I hope we somehow will miraculously escape it altogether without having to deal with the issue in earnest.

Equities are extremely expensive compared to both cyclically adjusted profits and gold

It’s just that with equity valuations 3x their norm (MAPE at 45 rather than 15), and gold only at about 1/4 vs S&P 500 of where it was even quite recently, and twice the amount of “almost junk” rated corp debt in the US vs. before the last crisis, and countless trillions of derivatives, extreme debt levels and recent changes in debt levels for govs, corps and individuals in most places, and 25 Tn printed money since 2008, I just don’t see how to resolve it all without tremendous volatility and chaotic relative movements between asset classes as everybody tries to salvage what can be salvaged.

REAL assets are the way to go of course, but it’s not that easy to say what IS a real REAL asset. Gold at least will stay gold, but you can’t eat it, and it’s difficult to transport. Meanwhile, bitcoins can be transported across borders by just memorizing 12 words in the right order, but they’re “just” an accounting mechanism with no tangible value (apart from the distributed and secure accounting function, which definitely has intrinsic value).

Central banks are at the end of the rope

In any case, I think both are starting to say that central bankers are losing their grip and the confidence of the people/markets. Sure, stocks are REAL claims too. In theory they grow with the nominal economy, and should grow with printed money (which there will be much more of soon). However, when relative prices between REAL gold and REAL companies are already 3-5x out of whack, you shouldn’t hope for repeating the same kind of Indian rope trick again on top of the previous one without a calamitous re-set first.

If the economy rolls over now, the Fed will probably lower rates and increase the QE “slope” (money printing) more than most expect.

Such “surprise” cuts are what kicked off the bursting of the bubble in 2001. This time is likely to get much worse – although the absolute first reaction might be a blow off top for equities first, to lure in the last fools at an extreme all time high. Gold and Bitcoin should still protect you in that environment. More importantly, they’ll protect you after the top.

ARE YOU PREPARED FOR A RE-SET? ARE YOU REALLY?

Please note, that I’m NOT making any recommendations for trading financial instruments. Do your research elsewhere.

 
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5 Comments

  1. It’s hard for me to be bearish when markets are making record highs. You are right, of course. But you could have written this every year for the past 10.

    If you were still running a hedge fund, would you be short now? I’m re-reading Reminiscences of a Stock Operator. One of the early lessons is prices are never to high too be a buyer. As long as the market is acting “well” on new highs. And don’t go short until there is a proven down trend.

    Good luck out there.

  2. I’m not at all sold on Bitcoin. If a property like distributed accounting gives it intrinsic value, then legal tender like the US$ most certainly has intrinsic value as well – and there’s nothing to stop similar or better blockchain technology being used for legal currency, if a government wanted to. Governments in any case are not going to allow money they can’t control to displace money that they do.

    Markets make record highs before every big crash; it’s what makes the crash possible. There are forces now driving the bubble that existed only in embryo before, but it can’t last forever. How long can it last? Not long enough to gamble on. Buying stocks at ten times their real value (measured by dividends) for resale to a Greater Fool is a zero-sum game. The winners of this game are not those who buy high and sell low.

    • Ha ha. Köp både och. Finns ingen anledning att bara välja silver eller guld.

  3. Man vet aldrig hur marknaden går…

    Men silver har en hävstång på x3 mot guld

    Säg att du har 100 K. Istället för att satsa 70 på guld och 30 på silver så satsa 50 på silver och ha 50 likvid…blir samma sak men man har likvid kvar att fylla på vid nedgång?

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