(Kitco News) – Cryptocurrencies like bitcoin continue to make new highs while hurting commodities, especially one asset class with a long history — gold.
The ongoing debate in the financial community is whether bitcoin (or other cryptos) will replace gold. But, one analyst is convinced this will “never” happen.
“It seems that more and more people justify investing in cryptocurrencies — even at current record prices — by claiming that they’re an effective hedge against the instability of fiat currencies,” wrote Olivier Garret, CEO of Mauldin Economics, in a Forbes post Thursday.
But it is hard assets like gold that are the “real stores of value” and safety against currency depreciation while cryptocurrencies fall short, argued Garret.
“Despite what the crypto-evangelists will tell you, digital tokens will never and can never replace gold as your financial hedge.”
Garret laid out a six-prong analysis comparing the two asset classes to make his case.
First, he argued that a majority of the digital coins available today will be “wiped out” and unlike gold, cryptocurrencies do not have a long history as a store of value.
“Only a few will become the standard, and nobody knows which ones at this point,” he said. “Cryptocurrencies have been around for less than a decade, whereas gold has been used as a store of value for thousands of years…We know for a fact that stocks and bonds have low or negative correlations with gold. This makes gold a powerful hedge.”
Garret also pointed out that hype and speculation seem to be driving cryptocurrencies’ values higher, which has many investors questioning whether some of these markets are in a bubble.
“With such an extreme degree of volatility, cryptocurrencies’ value as a hedge is questionable…This is pure speculation, not hedging,” he said.
Gold is considered the anti-fiat currency and although some investors like to argue cryptocurrencies also play that role, Garrett noted that digital currencies are more similar to fiat money than people think.
“The definition of ‘fiat money’ is a currency that is legal tender but not backed by a physical commodity,” he explained. “It’s clear that cryptocurrencies partially fit the definition of fiat money. They may not be legal tender yet, but they’re also not backed by any sort of physical commodity. And while total supply is artificially constrained, that constraint is just… well, artificial,” he added.
Garret also alluded to security and liquidity concerns surrounding cryptos that gold just doesn’t have.
“With security issues surrounding cryptocurrencies still not fully rectified, their capability as an effective hedge is compromised,” Garret wrote.
As for liquidity, he noted that gold can be converted into, “cash on the spot, and its value is not bound by national borders. The same cannot be said about cryptocurrencies. While they’re being accepted in more and more places, broad, mainstream acceptance is still a long way off.”
Just the mere size of both these markets is also a testament to gold being a stronger hedge, he said.
The World Gold Council put the total value of all gold ever mined at $7.8 trillion while cryptocurrency markets total at about $161 billion, Garret noted. “That’s a long shot from becoming as liquid and widely accepted as gold.”
(Kitco News) – Long-term outlook for gold remains positive, despite the yellow metal trading near three-week lows on Thursday, said ABN Amro.
The reason is the U.S. dollar, which the Dutch bank projects will decline next year and boost gold.
“The longer-term trend in gold prices is positive, mainly because we are negative on the U.S. dollar. Our forecast for the end of 2018 is USD 1,450 per ounce,” ABN Amro said in its October Commodity Update.
More good news from the bank is that gold will end the year at its key psychological level of $1,300, wrote Georgette Boele, the bank’s senior precious metals & diamond analyst.
“[This fall] gold prices dropped from USD 1,357 per ounce to USD 1,260 per ounce on 6 October mainly because of higher U.S. nominal and U.S. real yields,” Boele said. “The gold price decline stopped just above the 200-day moving average which is a positive signal. We keep our year-end 2017 forecast at USD 1,300 per ounce.”
On Thursday, December Comex gold saw a daily drop of more than 0.90%, falling down to three week-lows and touching $1,266. The yellow metal was last seen trading at $1,266.70 an ounce.
Markets were largely reacting to the European Central Bank’s (ECB) decision to start trimming its monthly bond-buying program in January.
“Gold and silver prices saw pressure from a strong rally in the U.S. dollar index and a plunge in the Euro currency, in the wake of the monthly European Central Bank meeting,” explained Jim Wyckoff, Kitco’s senior technical analyst.
(Kitco News) – Gold prices were ending the U.S. day session lower, near the session low, and hit a three-week low Thursday. Gold and silver prices saw pressure from a strong rally in the U.S. dollar index and a plunge in the Euro currency, in the wake of the monthly European Central Bank meeting. December Comex gold was last down $8.50 an ounce at $1,270.50. December Comex silver was last down $0.115 at $16.81 an ounce.
Thursday’s European Central Bank regular monetary policy meeting resulted in no interest rate changes from the ECB. However, the central bank said it is reducing its monthly bond-buying program amount by half, but is extending the timeframe of the bond buying. This outcome was about what the marketplace expected. However, ECB Chief Mario Draghi’s press conference was deemed to favor the dovish camp on monetary policy, and that allowed the U.S. dollar to rally to a three-month high and sink the Euro currency to a three-month low.
The most important U.S. economic report of the week is due out Friday morning: the advance third-quarter GDP estimate. The number is expected to come in at up 2.7% versus the second-quarter reading of up 3.1%.
Live 24 hours gold chart [Kitco Inc.]
Technically, December gold futures prices closed near the session low, hit a three-week low and scored a bearish “outside day” down on the daily bar chart. Bears have gained the slight overall near-term technical advantage. Gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at $1,300.00. Bears’ next near-term downside price breakout objective is pushing prices below solid technical support at the October low of $1,262.80. First resistance is seen at $1,280.00 and then at this week’s high of $1,285.30. First support is seen at today’s low of $1,269.60 and then at $1,262.80. Wyckoff’s Market Rating: 4.5
Live 24 hours silver chart [ Kitco Inc. ]
December silver futures prices closed near the session low and hit a three-week low today. The silver bulls and bears are on a level overall near-term technical playing field, but the bears have some momentum on their side. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at $17.50 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at the October low of $16.345. First resistance is seen at $17.00 and then at this week’s high of $17.17. Next support is seen at $16.75 and then at $16.50. Wyckoff’s Market Rating: 5.0.
December N.Y. copper closed down 55 points at 317.75 cents today. Prices closed near mid-range and saw mild profit taking. The copper bulls have the firm overall near-term technical advantage. A bullish symmetrical triangle pattern has formed on the daily bar chart. Copper bulls’ next upside price objective is pushing and closing prices above solid technical resistance at 330.00 cents. The next downside price objective for the bears is closing prices below solid technical support at 300.00 cents. First resistance is seen at today’s high of 320.00 cents and then at this week’s high of 323.90 cents. First support is seen at this week’s low of 314.40 cents and then at last week’s low of 311.20 cents. Wyckoff’s Market Rating: 7.0.
NEW YORK, Oct 19 (Reuters) – The euro climbed to the highest in nearly a week on Thursday as U.S. Treasury yields fell, pulling back from a two-year high, with the dollar weakening further late in the day on a report that President Donald Trump was leaning toward Jerome Powell as the next chair of the Federal Reserve.
Powell, a Federal Reserve governor, is favored by Treasury Secretary Steve Mnuchin, a story from Politico said. He is considered less hawkish than other choices on Trump’s short list like former Fed Governor Kevin Warsh and economist John Taylor. Powell would be expected to favor lower interest rates for the United States, reducing the value of the dollar to investors.
The euro rose to $1.1858, its highest since last Friday.
The euro was higher before the news broke, having rebounded from losses earlier in the week ahead of a policy meeting of the European Central Bank.
Investors shrugged off political uncertainty emerging from Spain before the ECB meeting, where policymakers are expected to reveal plans to unwind their multi-year stimulus.
The euro briefly waned against the dollar after the release of U.S. jobless claims data, which showed the lowest reading in 44 years, and a record high reading on the Philadelphia Fed Business Index. “The Catalonia thing is priced in now unless it blows up really badly and people seem to be happy going long euros before the ECB meeting next week,” said John Marley, head of FX strategy at Infinity International, a currency risk management firm.
Spain’s central government said on Thursday it would suspend Catalonia’s autonomy and impose direct rule after the region’s leader threatened to go ahead with a formal declaration of independence if Madrid refused to hold talks. The dollar briefly rose to a 13-day high against the Japanese yen in overnight trading, before reversing course later. It fell further after the headlines about Powell and was last down 0.4 percent to 112.49 yen.
The New Zealand dollar was the big mover among major currencies, with the kiwi sinking nearly 2 percent against the greenback, its biggest drop in nearly a year, after a surprise election victory for the country’s Labour party. “The market doesn’t like either piece,” said Marc Chandler, chief global currency strategist at Brown Brothers Harriman & Co. “It doesn’t like Labour, it doesn’t like the anti-immigration, protectionist views of the New Zealand First party and it’s a change in the status quo.”
(Kitco News) – Gold and silver prices ended the U.S. day session higher Thursday, on a corrective bounce from selling pressure seen earlier this week. A weaker U.S. dollar index and a downturn in world stock markets were supportive daily elements for the metals markets. December Comex gold was last up $6.60 an ounce at $1,289.60. December Comex silver was last up $0.268 at $17.26 an ounce.
The world’s bourses saw some profit taking Thursday after recently hitting record or multi-year highs. Today is the 30th anniversary of the “Black Monday” record-setting crash of the U.S. stock market.
The rift between Spain and its Catalonia region deepened Thursday when the Catalan leader did not respond to a government order to stop his secessionist plans. Spanish government officials are holding an emergency meeting on the matter. This was another mildly supportive element for the gold and silver markets today.
The key “outside markets” Thursday saw the U.S. dollar index slightly lower. Trading in the index has turned choppy. Meantime, Nymex crude oil futures prices were lower and trading above $51.00 a barrel.
China on Wednesday started its twice-a-decade Party Congress meetings, in which major economic and cultural planning initiatives are laid out for the next five years. Traders and investors will keep a close watch for any pronouncements coming out of those meetings. Overnight, markets were somewhat rattled when a Chinese monetary official warned of a “Minsky moment.” That is a theory by Hyman Minsky that says long periods of market stability leads to instability in markets. The China monetary official was referring to China’s asset bubble.
Live 24 hours gold chart [Kitco Inc.]
Technically, December gold futures prices closed nearer the session high and scored a bullish “outside day” up on the daily bar chart today. Bulls have the slight overall near-term technical advantage. Gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at $1,300.00. Bears’ next near-term downside price breakout objective is pushing prices below solid technical support at the October low of $1,262.80. First resistance is seen at today’s high of $1,292.00 and then at $1,300.00. First support is seen at today’s low of $1,277.60 and then at $1,270.00. Wyckoff’s Market Rating: 5.5
Live 24 hours silver chart [ Kitco Inc. ]
December silver futures prices closed nearer the session high today. The silver bulls still have the slight overall near-term technical advantage. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at $17.75 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at the October low of $16.345. First resistance is seen at today’s high of $17.295 and then at $17.50. Next support is seen at $17.00 and then at this week’s low of $16.92. Wyckoff’s Market Rating: 5.5.
December N.Y. copper closed down 105 points at 316.80 cents today. Prices closed near mid-range and saw more profit taking after hitting a 3.5-year high on Monday. The copper bulls still have the firm overall near-term technical advantage. Copper bulls’ next upside price objective is pushing and closing prices above solid technical resistance at the September high of 330.00 cents. The next downside price objective for the bears is closing prices below solid technical support at 310.00 cents. First resistance is seen at 320.00 cents and then at this week’s high of 325.95 cents. First support is seen at today’s low of 313.80 cents and then at this week’s low of 311.20 cents. Wyckoff’s Market Rating: 7.5.