Forget Cryptocurrencies, Buy Gold

Gold stocks

Last week, I argued why cryptocurrencies are a terrible investment. They are extremely volatile and in a downtrend.

That’s not ideal.

Plus, while a number of well-known wealthy people endorse the sector, most institutions aren’t involved. That’s mainly due to the unregulated and decentralised exchanges. These ‘dark’ exchanges could go under or get hacked at any moment. Which is exactly what happened last week.

As Bloomberg reported on 29 January:

Early Friday morning in Tokyo, hackers broke into a cryptocurrency exchange called Coincheck Inc. and made off with nearly $500 million in digital tokens. It’s one of the biggest heists in history, with the exchange losing more than 500 million of the somewhat obscure NEM coins. The hack has raised questions about security of cryptocurrencies around the world.’

Need we say any more? The NEM coins were stored in a ‘hot wallet’ instead of the more secure ‘cold wallet’, which operates on platforms disconnected from the internet. Regardless, there’s a long history of crypto exchanges being hacked, such as the infamous robbery of Tokyo-based Mt. Gox in 2014. That’s when US$400 million worth of bitcoin was stolen.

The hack led to a two-year cryptocurrency bear market.

Is another bear market starting? No one knows for sure. But, at the very least, I believe more government regulation is on the way.

This could destroy cryptocurrency prices.

Others might disagree. But bitcoin and other cryptos became popular thanks to privacy. After that’s taken away, and with the risk of losing your money from a hack, why would you buy a cryptocurrency? They are a terrible investment. So, while crypto punters ignore the risks, we suggest checking out the gold sector.

Gold’s story

Gold is trading near US$1,340 per ounce. It’s up 6% for the year, in part due to a weaker US dollar.

Donald Trump, since he became US President, has argued for a lower greenback. He got what he wanted. But his view changed last week. Trump tweeted that he wants to see a strong US dollar, which is reflective of a strong economy. Nonetheless, with mixed economic reports coming out of the US, punters have opted for other currencies and gold.

However, I believe the US dollar could turn around soon. 

Mario Draghi, European Central Bank President, isn’t in a rush to raise interest rates. And with inflation remaining strong in the US, there’s a good chance more interest rate increases are to come.

Investing.com reported on 29 January:

Goldman Sachs said it expects the Federal Reserve bank to adopt a slightly hawkish slant in its commentary related to economic conditions and inflation, when the central bank releases its policy statement due Wednesday.

That stoked investor expectations for a more hawkish outlook on US rates, sending yields soaring while boosting the greenback, pressuring gold to session lows. Markets have priced in three rate hikes this year, the first of which is widely expected in March.

Dollar-denominated assets such as gold are sensitive to moves in the dollar – a rise in the dollar makes gold more expensive for holders of foreign currency and thus, reduces demand.

Yes, interest rates are likely to go higher in the US. But that doesn’t mean gold will go lower. The most recent Commitment of Traders (CoT) report was bullish for gold. It showed long speculative positions grew by 8,630 contracts to 236,003 Comex gold futures. In other words, traders keep increasing their bullish bets that gold will continue to rally.

There’s a good chance that could happen.

If Donald Trump lied to the American people when he called reports he tried to fire Robert Mueller “fake news”, that would be grounds for impeachment, the independent counsel who investigated the Clinton White House has said. Ken Starr, who used Bill Clinton’s false statements about his relationship with Monica Lewinsky as grounds for impeachment, told ABC’s This Week: “Lying to the American people is a serious issue that has to be explored.”

The New York Times and others reported that in June Trump ordered the White House counsel, Donald McGahn, to fire Mueller.’

I believe the gold price is rising because Trump might get impeached. US career politicians don’t like change and have never wanted Trump in office. From igniting the Russian election meddling scandal, which former President Barack Obama and Republican Senator Lindsey Graham initially denied, to firing James Comey (former FBI director), elitists want Trump out of office. They will do whatever it takes to get him out, which is why the US dollar has been falling and gold has been rising.

I believe gold will skyrocket if Trump gets impeached. I’d expect it to rally more than US$100 per ounce in a day. If that happens, the best junior gold stocks could double or triple.

Regards,

Jason Stevenson,
Resources Analyst, Gold & Commodities Stock Trader

Jason Stevenson

Jason Stevenson

Analyst at Markets & Money

Jason Stevenson is Markets and Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options.

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