In its latest report, Coin Metrics shows that the correlation between gold and Bitcoin has been strong since the start of the year. And as the barbarian relic marks a new all-time high, we have every right to wonder if cryptocurrency is on the cusp of a powerful bull run.
Gold vs Bitcoin
The graph below which shows that there is a strong correlation between gold and Bitcoin. This simultaneity suggests that Bitcoin is gaining its stripes as adigital gold.
We can see that the two safe havens plunged side by side at the start of the Covid crisis.[Le Bitcoin avait alors perdu plus de la moitié de sa valeur contrairement à l’or qui bénéficie d’une distribution beaucoup plus homogène et stabilisante. En effet, rappelons que moins de 10 000 personnes possèdent plus de la moitié des Bitcoins.]
We have since seen a tandem rise that brought Bitcoin back to the frontline of $ 10,000. The yellow metal is meanwhile at the highest historical.
The correlation is 0.42 since the beginning of the year. Knowing that a correlation of 1 is a perfect correlation and -1 is a perfectly inverse correlation. This reveals that the couple are evolving quite synchronized for almosta year.
This is a remarkable development when we know that this correlation was only 0.03 over the period 2012-2020. This lack of affinity is, however, due to the flight exponential Bitcoin since its inception. In other words, the correlation with gold is not alpha and omega. No one here will be sorry for a correlation of -1 in the event that gold goes down while Bitcoin goes up …
But the good ambient correlation is of particular interest to us today because gold is at an all-time high against the dollar. The rubicond has already been crossed against the Euro, Yen and other currencies and this new level is a strong signal whose shock waves will be of greater magnitude for Bitcoin.
It is difficult to see how the dollar will be able to resist against gold. It is true that the American Central Bank (FED) has so far printed less money than its European and Japanese counterparts (compared to GDP) but we are seeing a catching-up effect with the restart of quantitative easing on the other side. of the Atlantic.
That being said, and even if the balance sheet of central banks is a good gross indicator, it is inflation that must be watched carefully. Indeed, the best definition of the usefulness of gold is ultimately to hedge against inflation. Its limited quantity, increasing much more slowly than the number of dollars in circulation, makes it a witness to the decline in our purchasing power.
We must also keep an eye on the debt and budget deficits of nations. Whoever says increasing debt means increasing the amount of money in the economy. Which generates inflation, all other things being equal. The lights are green on this side … The US budget deficit will reach this year its highest level since World War II (relative to GDP). $ 3 trillion spent over the Last 12 months… So many billions that will be added to a debt currently reaching 25,000 billion.
The real rates are also very important. The real rate is the rate of return on your savings less inflation. If the latter is negative, (it is), then gold, even if it does not earn interest, naturally becomes attractive.
Some will fear a speculative drop in gold, but it has passed the test of time … Who can believe that gold can fall sustainably in a world where debt can only increase? …
How far will the gold go?
Its value has appreciated by more than 35% since summer 2019, touching $ 1800 the last day of the first half of 2020. So what should be done for the rest of the year?
A good marker lately is to look at what the investment banks think about it. However, the latter keep raising their expectations. Searching for the word gold is also on the rise on Twitter and Google, which bodes well.
Goldman Sachs anticipates 2000 $ during Next 12 months. The Bank of America is even more prolific by providing 3000 $ from here 18 months. The latter prediction would mean an increase of 150% between July 2018 and January 2022. That is the same increase as we experienced between the 2008 crisis and the peak of 2011 …
These bullish scenarios are probably below reality because banks don’t like to see gold go up. It is indeed preferable to suffocate the canary in the coin mine to hide the inflationary pangs of their debt machine…. JP Morgan, Bank of America, Deutsche Bank and others will soon be condemned for manipulating the price of gold and money on the decline for a decade, if not, more…
So you can believe them when they tell you that the gold will go up …
And by the way, JP Morgan itself will be prosecuted this time around for market manipulation. Good news as banks are used to pleading recklessness by hiding behind scapegoat traders. #Kerviel
This is a figure that may make you smile, but it is obvious that we will get there sooner or later. Maybe not next year, not in 2 years. But we’ll get there, just as Bitcoin will shatter the $ 20,000 glass ceiling.
The primary reason behind this assertion is that the China – world’s first purchasing power parity economy – fully intends to put gold back at the center of the international monetary system. In short, a return to gold standard which had emerged at the end of the Second World War. A just system that the United States broke by putting end to the convertibility of the dollar into gold (1971) …
Overall, gold tends to go up whenever the international geopolitical balance is rushed. This is exactly what we have seen since the Second Gulf War. The great powers clash in neighboring wars in order to preserve or conquer energy square meadows. Worse, armaments spending continues to increase. The United States is leaving nuclear non-proliferation treaties one after another… In this regard, the latest news on the treaty New Start (reduction in the number of nuclear weapons) due to expire in February 2021 are not encouraging …
China Sea, Kashmir, Persian Gulf, Syria, Iraq, Libya, Turkey, Iran embargo, USA-China trade war, economic sanctions against Russia, CovidThere is no shortage of stumbling blocks and it is hard to see how we could reconnect with global cordiality anytime soon in this explosive context.
When confidence crumbles …
When confidence between nations evaporates, confidence in currencies is the first to falter. The dollar’s value today is mostly backed by tanks and aircraft carriers. However, other nations, Russia in the lead, now have more sophisticated weapons. Faster …
The economy will not be able to restore the American image either. 48 million people have gone unemployed in the last 3 months. Worse, half of the working population is unemployed … The extension of the Covid crisis risks ending in a double-dip recession, as they say in New York. The “V” resumption is no longer relevant and even the “U” scenario seems to be having a bad time.
Even more worryingly, the US shale oil will probably take very long quarters to recover. A simple blocking of the Strait of Ormuz could then plunge the United States into an “L” shaped recovery … This is a scenario at the bottom of the drawers of the Iranian generals but it is good to have it in mind …
“I don’t think I will see 13 million barrels a day again in my lifetime “Gallagher, managing director of Parsley Energy, one of Texas’s largest oil producers, told the Financial Times. There are currently less than 230 active wells in the United States against more than 850 a year earlier …
To put it another way, gold is chomping at the bit against the dollar. With the correlation becoming increasingly palpable with Bitcoin, it is highly likely that we are on the verge of a sharp appreciation in cryptocurrency. A technical correction in gold in the short term (as is often the case after crossing a major threshold) will only retreat the better to jump.
Child of Satoshi, the alchemist who turned a cryptographic algorithm into gold.
I’m talking about monetary geopolitics, not shitcoins.