Gold vs Bitcoin

When was the last time you saw gold post new highs?

Three months ago? Six? Maybe it was early 2012?

Nope. You’re way off.

Sparked by the eurozone crisis, the August 2011 rally marks the high point for gold. If you’re keeping score, that means 20 months have passed since gold has posted new highs.

Sure, we’ve seen a few rallies (gold has failed at US$1,800 three times since late 2011). But not once has gold made an honest attempt at US$1,900, let alone US$2,000.

Right now — while the world is smitten with the meteoric rise of Bitcoin — the yellow metal is perilously close to another key inflection point.

Gold's Precarious Position


Late last week, gold dropped briefly below US$1,550 for the first time since 2012. This is the area you have to watch closely. Since gold slipped from its highs in 2011, buyers have always come in to support the price at US$1,550. If this support zone fails, panic selling could send gold as low as US$1,400 in a matter of weeks.

For the record, I don’t see this playing out as a battle between gold and Bitcoin. While Bitcoin is a fascinating story, there’s just no way flipping gold for the decentralized currency is a legit trade. I’m sure some speculators are doing it. But that’s not why gold is dropping…

The simple fact is that after a 13-year run, investors are selling. Spare me your central bank stories. The market doesn’t care how you feel about monetary policy right now. Selling is contagious. And right now, it’s getting close to a pandemic.

Investors are selling gold ETFs at a record pace. Approximately 106 tonnes of bullion was dumped in February, according to CNNMoney. That’s the biggest monthly sell-off ever. That’s where your selling pressure is coming from — whether you like it or not.

The gold cycle is turning. Avoid the ETFs and miners. If you own them, get out now. These will be the most vulnerable investments as the drop approaches.

‘The astonishing rise in the use of Bitcoins may be an indication that gold and silver, as stores of value, are losing their cachet,’ writes a reader. ‘Bitcoins allow people to bypass conventional methods of paying for goods and services no matter where they are in the world; that’s rather difficult to do with gold and silver.

‘As such they act as a replacement for the US dollar as a medium of global exchange. Bitcoins are essentially just another fiat currency and require a similar faith among users that their value will not be deliberately debased, as has not been the case with the dollar.’

One day, Bitcoin might find its place in the world as a portable reserve currency. But right now, it’s just too early to tell.

I understand the attraction-but there are far too many unknowns to begin calling Bitcoin a store of value. By the looks of its chart, I have to label it a wild speculation at the moment:

A Bitcoin Bubble?


I’ve seen plenty of charts like this. All of them play out the same way eventually. Buyer beware.


Greg Guenthner
for Markets and Money

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