Summary Gold’s long-held status as the number one safe haven asset is seriously compromised by crypto. Gold is stagnant and crypto remains buoyant and defiant. If the hand of regulation is light on crypto, gold risks becoming ‘boomer Bitcoin’. A halt in crypto’s march to mainstream by regulators would likely see gold surge. While an investor can pick sides, holding some of each is the sensible alternative. Gold: Why isn’t it so much higher? With high inflation gold is meant to take off. That is what is written in every 101 investment book. Yet here is the chart. It is super long term: Long term gold chart (ADVFN) You will notice that gold was very strong but, the moment the hyper money debasement wave starts, its rise stops. There is now a triple top, no moon shot to reflect inflation. A bull will see the base of a potential exponential rise in this chart and a bear will see a fall back to $1000. The only call is: which way is the breakout going to head? Firstly, let me say I have some chunks of gold and was - up until recently - very bullish and up to my ears in precious metals. I read those investment books when I was an infant and I still want to believe. However, as a grizzled old investor I've learnt to ‘trade what I see’ and what I see is little connection of gold stocks values with the price of gold; I see breaks in the linkage of the price of gold and its actual availability, and a disconnect of the gold price from the classic ‘inflation trade’ that is meant to be core and sacred. As such, as I’m left looking for the fool at the table it seems that it may well be me. However, there is always a reason why markets do what they do, and they are very often right. An investor is doing well to get over the barrier of being right half the time, so it’s no good giving up trying to decode the Rosetta Stone of market behaviour just because it doesn’t give up its secrets immediately. So here is a tangent for you... Crypto has the hounds of the US government after it, it is banned in China and various other places but it’s still flying high. That is a mighty achievement. It says there is a huge support for these assets and a lot more than the markets’ total value of less than a trillion suggests. Folks out there back crypto against the weight of global governance. That’s impressive. What is it about Bitcoin that keeps it not just afloat but flying against all these headwinds? The answer is its gold-like properties. The reason I believe gold is going nowhere is its use case as flight capital and safe harbour in extreme situations is hugely undermined and replaced by crypto. Try this mind experiment: How would you feel taking 2kg of gold through an airport? Pretty sweaty I would think! That stress is not even a consideration with $100m of Bitcoin. Now before the old gold bugs reading this start quivering there is potential good news for gold investors. If the US kills crypto or, in effect, chains the financial Prometheus to a rock and has the Eagle of regulation peck out its liver each morning, Bitcoin will lose much of its leverage in this flight capital, haven asset use case. If you choke the on- and off- ramps of crypto into fiat and the banking system - which is the path that regulators wishing to strangle crypto will take - then crypto loses a lot of its current value as an asset that competes with gold. So right now, it looks clear that the US is looking to shut crypto down and halt its passage into the mainstream. If the Republicans get in at the next US presidential election that might change. However, for now, the SEC has made it clear that crypto is just a den of iniquity and it is on a mission to clean house, which amounts to sweeping the bulk of the US industry (or at least their business models) into the gutter. If they do that, up will go gold. If the SEC et alia. accommodate Bitcoin and Ethereum, etc., and let this new industry gently morph into a new financial model, then gold risks becoming ‘boomer Bitcoin,’ a hobbyist’s investment and a legacy asset or just another exotic metal commodity. Alternatively, rather than watch the unpredictable, unreliable, grandstanding wonks, you can just watch for a chart break up or break down to estimate what’s going on in the inside of the machine, because classically these top formations are just staging points for big moves. It the market goes gold up/BTC down or vice versa this will help substantiate the idea that gold and crypto are at loggerheads for the ‘haven/flight asset’ role. The SEC will set the stage for this and all will become clear this summer on whether crypto is to be throttled or allowed in an onshore US future. To me, gold is surprisingly weak and Bitcoin is surprisingly strong and that should be all I need to know that, that is what it is. However, I can’t help seeing the long-term chart and expecting a vertical for gold to make the ‘hockey stick’ that inflation always delivers in assets. My solution is to lazily acquire gold but also crypto, because gold has an awfully long history of value and crypto has a bright long-term future whatever the short term. Diversification is good but it is still not the time to go boots first into either. Yet it is still a good time to slowly build up your stock of these assets because one thing is certain: a cache of safe haven assets cannot be a bad thing to have in this new normal .
