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Bitcoin appreciation over past years remains impressive
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New highs for gold in 2022
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The case for Bitcoin
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The case for gold
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Either case tells us the same thing
At the turn of this century, gold was trading below $300 per ounce. Over the past twenty-two years, every dip in the precious metal has been a buying opportunity. Gold rose to its most recent high at nearly $2,080 per ounce in March 2022.
In 2010, one Bitcoin was worth five cents. In November 2021, the price of a single token nearly reached $69,000. When gold was below $300, Bitcoin didn't even exist.
Rising inflation, geopolitical tensions, and other factors have boosted both the precious metal and the cryptocurrencys value over the past years. Gold is old school, while Bitcoin is a new school asset. Each has supporters that believe the asset will continue to appreciate. Moreover, each has devotees who display almost religious fervor for the asset.
At the end of last week, gold was trading around the $1954 per ounce level; at time of publication it's trading lower, at $1933. Bitcoin had a more robust weekend. Whereas last week it was at $44,850 per token, on Monday it's moved higher, to $46,937. As alternatives to other investments and means of exchange, gold and Bitcoin compete for capital in the current environment with many considering them both safe haven assets.
Bitcoin appreciation over past years remains impressive
After falling from $68,906.48 on Nov. 10, 2021, to $33,076.39 on Jan. 24, 2022, Bitcoin settled into a trading range before starting to move higher over the weekend.
Source: Barchart
The chart shows that the 52% correction led to a consolidation period where Bitcoin traded between $34,366.52 and $45,734.08, with the price moving past the high end of the range on Mar. 27.
While Bitcoin has digested the corrective move from the November 2021 high, the price remains closer to the Jan. 24 low. Meanwhile, considering that Bitcoin was at five cents per token in 2010, the appreciation at the current, $46,937 level has been unprecedented.
New highs for gold in 2022
Gold and Bitcoin have a lot in common as they are both alternative means of exchange. Gold is the most old-school asset. Its role in the global financial system dates back thousands of years, while Bitcoin is a newcomer.
Since the turn of this century, in 2000, every dip in gold has been a buying opportunity.
Source: CQG
The quarterly chart shows the pattern of higher lows and higher highs since COMEX gold futures reached a bottom of $252.50 in 1999. The latest high came in March 2022 at $2,078.80 per ounce, over eight times the level of the yellow metal at the 1999 low.
Gold reached a new high as US and worldwide inflation hit their highest level in over four decades. Gold has a history as a barometer of inflation, plus it's also sensitive to geopolitical turmoil.
Russias invasion of Ukraine and tensions between the US-Europe and China-Russia have caused gold to move to a new record peak this month.
As well, Moscow had prepared for sanctions by limiting its US dollar reserves in favor of euro and gold.
The chart above highlights Russias foreign currency reserves as of June 2021, with euro and gold the top holdings.
On Mar. 24, the Group of Seven leaders announced a new round of sanctions, freezing Russia‘s gold reserves. The precious metal has become a tool for Russia to evade sanctions and for the west to tighten the economic noose around Russia’s neck as the war in Ukraine continues.
Inflation and the first major war in Europe since WW II have pushed gold to new highs. Plus, the trend suggests that higher highs are on the horizon. After the latest Fed meeting, DoubleLine Capitals CEO Jeffrey Gundlach said he prefers Bitcoin to gold in the short-term. Mr. Gundlach explained that the leading cryptocurrency is near the low end of its range, while gold is near the high end of its trading band.
Since Bitcoin burst on the scene and exploded higher, there has been a debate over whether the crypto is the new gold. Meanwhile, they have both offered substantial returns over the past decade.
The case for Bitcoin
Bitcoin is the leading cryptocurrency. At the $46,937 level, the market cap stood at over $892.18 billion, more than double Ethereum, the second-leading crypto. The case for new highs in Bitcoin includes:
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Bitcoin has many supporters that have made the leading crypto a more mainstream investment and trading asset.
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If the market cap of the cryptocurrency asset class is going to continue to grow, portfolios are under-invested.
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The correction may have limited the speculative frenzy, but it will return with a vengeance if Bitcoin breaks above the $50,000 level.
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The ideology behind Bitcoin and all cryptocurrencies is the rejection of central banks and government control of the money supply. As fiat currencies lose value, more capital is likely to flow to the burgeoning asset class.
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The trend is always your best friend. In Bitcoin, the long-term path of least resistance remains higher.
Meanwhile, a wedge pattern has developed in Bitcoin over the past months.
Source: CQG
The daily chart of March Bitcoin futures shows that while the crypto has continued to make lower highs, the lows have been higher since the Jan. 24 bottom. A wedge formation often leads to a breakout to the up or downside, and Bitcoins long-term trend favors the upside.
The case for gold
Gold is a mainstream asset that predates the Bibles old testament, which mentions the precious metal over 400 times. The bullish case for gold includes:
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Central banks and governments validate golds role in the global financial system by holding the yellow metal as an integral part of their foreign currency reserves.
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Golds sensitivity to inflation is likely to continue. While the US CPI reading rose to 7.9% YoY in February 2022, the war in Russia is likely to push the inflation indicator to far higher levels in March and beyond.
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Gold tends to fall when interest rates rise. However, the Fed is far behind the inflationary curve, with the prospects for positive real rates nowhere on the horizon.
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Sanctions on Russian gold will limit supplies as it is the third-leading worldwide producer.
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Gold has made higher lows and higher highs for over two decades, with no end to the bullish trend on the horizon.
Gold is the metal that has been a store of wealth throughout history, which is not likely to change. Rising inflation and geopolitical tensions at a boiling point support gains over the coming weeks and months.
Either case tells us the same thing
The bottom line is that I expect both gold and Bitcoin to appreciate. Jeffrey Gundlach could be correct because Bitcoin has far more room given the move to nearly $69,000 per token in mid-November and its current price level. Meanwhile, gold at $1933 is about $146 below its all-time peak. However, golds trajectory remains higher, and a move to $2500 or even $3000 per ounce in 2022 is not out of the question.
Bitcoin‘s volatility makes it a far riskier asset, while gold’s volatility suggests less risk.
I favor holding both gold and Bitcoin in portfolios. With a 20% allocation for alternative assets, I favor a 15% allocation to gold and 5% for Bitcoin. The debate may continue, but I believe we will see the cryptocurrency and precious metal move much higher over the coming weeks and months.