The outlook for gold and silver bullion prices has turned back to Strong earlier last fall. Several significant factors — now accelerated by this latest crisis and the economic strains of the worldwide over-reaction to it — are increasingly working in favor of precious metals as an investment into 2020 and beyond.
The great sell-off that had been triggered in late-summer of 2011 by ETFs pulling out of and liquidating huge gold and silver positions, has long been absorbed and fully digested by the markets. Prices used to sit in a narrow band for an extended period of time after that sell-off, making price declines in precious metals appear over-exaggerated for a significant period of time spanning from 2011 to at least 2017 . Still, on closer scrutiny, both precious metals actually kept much of their value, with gold performing not too bad in particular even during that period.
Demand for Non-Fiat Investments
Inthe intermediate term, and with the up and coming Crypto currencies becoming increasingly popular after 2011–3, some investment money looking for alternatives to fiat or paper investments had gone into Bitcoin, Litecoin, and other of the so-called virtual “currencies” or, rather, Crypto coins or tokens.
In light of the above, we’re obviously talking about physical precious metals bullion coins and bars here, not papered-over derivatives of them like any ETFs or investment funds. While trying to play in on the demand for gold or silver, they only are tracking gold and silver prices (which may or may not be profitable, but has got nothing to do with why these prices may rise in the first place). So what this article is about is bullion-in-hand or real physical gold or silver bullion products.
Gold Now Made a Tier-1 Asset under Basel-III Rules
With a number of both fundamental and technical events more recently, this trend in favor of Crypto has seemed to be reversing for a few months prior to fall 2019. The most prominent one among these is the move of Gold Bullion in Basel III banking regulations to a tier-1 asset, up from tier-2. This means that gold held by commercial banks as a capital reserve is now an asset which is marked to market with a 100% instead of the earlier 50% of its market value when it was classed as a tier-2 asset.
By this move, one of the last major disadvantages for banks to holding gold has been lifted. Being able to account their gold holdings with 100% value increases banks’ balance sheets and, therefore, their ability to issue more loans and profit from resulting interest earnings.
Other significant factors include technical hurdles in Crypto prices which will take some more time to clear. Crypto prices — most significantly shown in the Bitcoin (core) market itself — are now forming an NSW (narrow sideways-channel, or something of a plateau) from a technical point of view. This makes it increasingly hard for Crypto prices to break out and continue upwards. Such a move is, therefore, likely not happening before the end of 2019 or early 2020.
Precious Metals Prices Have Clearly Bottomed Out
So far, the result of all of the above has been a bottoming-out in precious metals prices, followed by a significant turnaround, in the wake of this summer’s Basel III re-classification of commercial bank gold holdings. Adding to the mix are the liquidity shortages in the New York interbank or Repo market in the Fall of 2019 that was not possible to fully be swept under the carpet. As a result, the gold price received its trigger to break out of its own narrow-sideways-channel between $1300 and $1430 and began testing the $1500 barrier later last Fall. While $1500 seems to be a significant hurdle and may take some time for gold prices to tackle, once cleared the upward move in gold is likely to accelerate. Silver should then follow suit.
We had to wait some time to see whether or not Crypto tokens would be able to shrug this off easily. While this seems to actually have drained yet more capital out of the Cryptos as an asset class and dragged Crpyto market prices down further for nearly a year, the answer is now in with Bitcoin’s and other Cryptos’ renewed upward moves and new all-time highs in Bitcoin itself. Precioius Metals prices have held steady during the same period of time though, suggesting that overall demand for non-fiat investments is rising in general and that there is actually sufficient demand to lift both asset classes. These rises may come simultaneously or in waves going back and forth between precious metals on one hand and Cryptos on the other, but they are likely here to stay longer term.
Extended article revised and updated December 28, 2020, original draft was written December 12, 2019
This year, Crypto coin traders have been waking up to some Christmas treat really: right on Boxing Day, and while LTC was doing very nicely on its own and has broken above $130 again in a long time, over in the BTC-to-dollar market new record highs were set.
Bitcoin broke above the $25,000 mark for the first time, thereby setting yet another all-time high for the Crypto currency against the U. S. dollar.
The move appears to have been fueled by continuing uncertainty in the United States over the stolen election and possible remedies against that attempted coup d’etat on the part of some over-eager Biden supporters in several states. The US Dollar Index had already suffered, with the value coming down from just under 100 to around 89 at the time of writing, and a number of Forex and Crypto traders have been observed mentioning that they would short the dollar further, unless the Dollar Index reading recovered back over the 90-91 area. As this hasn’t happened yet, the dollar-defying moves in all markets, including Crypto-against-dollar ones all over Crypto exchanges and P2P Crypto trading is not even surprising.
It remains to be seen whether or not rhings reverse once “silly season” ends and the markets return back to more regular trading and hours in early January. But for now, Crypto coins seem set on testing new highs. For BTC, that would be the important £30K mark, while LTC might continue forward to test the next significant high at around $146, last seen in 2019.
While only the markets themselves will be able to prove or disprove these numbers, there is still room left for some upward phantasies either way as both targets are at least a few days away.
The fact that Bitcoin prices did not drop on news about the CBOE abandoning their ETF applications might be yet more proof of there being no significant portions of dumb money in the overall Crypto markets.
When it comes to ETFs on the BTC price, their audience would be even dumber than for, say, stock index ETFs or market segment ETFs as anyone buying an ETF on the Bitcoin price does not know the first thing neither on how to set a simple Wallet up in a few clicks nor risk management, asset classes and that some price exposure on Crypto would not hedge against systemic risk, political risk etc in (electronic) securities trading.
Good for the Crypto segment to prove that it is not overly dependent on that kind of money.
With constant discussion of what kind of an asset Crypto coins are, last weekend’s price action again demonstrates that Crypto is “different” in so many ways.
The price outlook for gold and silver bullion has again turned to strong. There are several factors that have resumed working strongly in favor of precious metals investment.
After its peak in late-summer 2011, the gold and silver market has seemed to be on the retreat to most investors. The great selloff triggered by ETFs pulling back from the gold and silver market segment over-exaggerated the perceived decline in precious metals prices. On second thoughts though, both precious metals kept much of their value, with gold performing not too bad in particular.
In the intermediate term, and with the advent of Crypto currencies, some investment money looking for alternatives had gone into Bitcoin, Litecoin, and other of the so-called virtual currencies or, rather, Crypto coins or tokens.
With a number of both fundamental and technical events, this trend in favor of Crypto seems to be reversing right now. The most prominent of these is the move of Gold Bullion in the Basel III regulation from a tier-2 to a tier-1 asset. This means that capital reserves in gold held by commercial banks are now marked to market with a 100% instead of 50% ratio (as previously, when gold was classed ‘tier-2’). The other factor is technical hurdles in Crypto prices, now forming something of a plateau or NSW (narrow sideways-channel) from a technical point of view that it’s increasingly hard for Crypto prices to break out of.
The result, so far, has been a bottoming-out and significant turnaround in precious metals prices in the wake of this summer’s Basel III gold holdings re-classification. Gold prices have broken out of their own narrow-sideways-channel between $1300 and $1450 and have started testing the $1500 barrier in September. While it may take some time for this price level to clear, once it does the upward move in gold as well as silver bullion prices is likely to accelerate.
It remains to be seen whether or not this will drain more capital from the Crypto markets of if Crypto coins will be able to shrug this fact off.
The Chicago Board of Exchange has withdrawn its applications for Bitcoin ETFs. Bitcoin and other Crypto prices held steady despite the fact that the mainstream news and financial talking-heads might see a move like that ‘catastrophic’ for near-term prices. Rather than following conventional ‘wisdom’, prices of Crypto coins continued their overall friendly moves seen to be back in the markets since mid-December, with most of them trading steady to higher compared to US dollars or other national currencies.
The fact that BTC prices did not at all drop on this particular bit of news should be seen as yet another proof of no significant portions of dumb money slushing around in the overall Crypto markets anymore — an overall positive fact when it comes to near-term to medium-term outlooks for Crypto prices.
Just over a year ago, and with the Crypto price mania in full swing, expectations of the introduction of Bitcoin Futures may have been a large contributing factor to the explosive price movements at the time.
Sure enough, this resulted in very short-lived hyperbolic growth followed by a blow-off top and serious breakdown in price, from which Bitcoin and the other Cryptos have, so far, spent roughly a year trying to recover.
It is very nice to see that the CBOE’s turn-down did not deliver another blow to the price of Bitcoin against the US dollar for many reasons: apart from the obvious preference for advancing prices, it’s got to do with a deeper analysis of the audience or market participants in the overall Crypto coin sphere. It is a well-known fact that ETFs attract usually the very dumb money of particularly unqualified speculators. Buying an ETF on anything does not require any sophistication whatsoever — but understanding why this is more often than not a bad idea anyway would take at least some, and that’s why so many people buy them and ETF managers are laughing all the way to the bank.
When it comes to ETFs on the BTC price, the audience is even dumber than for, say, stock index ETFs or market segment ETFs that may (or may not) make sense to someone wanting a quick fix and some price exposure to, e, g, the S&P500 which (after listening to his “financial advisor” or watching hundreds of hours of CNBC or Bloomberg) he may believe a “non-tradeable” instrument. (Do note though that the S&P500 can be traded, in fact, even if buying or selling S&P futures require very high margins and is beyond the means of many small investors; still, price exposure can equally be had by buying and offsetting S&P options, starting at $25 per pop, or options on the S&P mini from $5.) When it comes to buying an ETF on the Bitcoin price, doing so shows an even more severe lack of information. Dodging the hassle of even looking into how a simple Bitcoin wallet can be set up and the resulting willingness to go for a Bitcoin ETF instead only proves that this speculator is not even able or willing to do a few clicks on his computer but turns to his “trusted providers” of consolation and perceived safety instead. A retail investor or speculator of this type will, of course, pay significant mark-ups (as in extra-high prices plus fees charged) on something he could have had for zero fees!
Demonstrating price moves indicating that the overall Crypto segment is not overly dependent on that kind of money is a very good thing.
After breaking record high after record high during the same time last year, the ensuing decline and overall price breakdown of Bitcoin and Alt coins across the board have quickly made Crypto almost everyone’s least-favored investment.
Rightly so, if what matters for the great majority of Bitcoin enthusiasts is only price against US dollars or other paper currencies.
At the risk of sounding boring or repetitive, it needs to be stretched though that — more than opportunity for high-volatility trading and asset price appreciation — Bitcoin’s most important feature is the introduction of distributed ledger technology (DLT) and its potential for decentralized application technologies and the development of innovative and even more cost-effective solutions than conventional internet technology brought about.
Right now, Crypto token prices may be consolidating and show a few sign of developing a bottom formation — but one that is far from confirmed yet, so nobody should read this or any similar comment as an invitation to jump in and repeat their get-rich-quick dreams fostered last year.
Prices this week have shown an upward move above mid-Novembers meltdown that had been brought about by Bitcoin Cash’s hard fork and resulting market instability. If (and only if) prices further stabilize and continue building a classic 1-2-3 bottom formation, then a further increase out of the doldrums could be in the books for early-2019. This would likely see a Bitcoin price recovery (that might be relatively short-lived though), followed by a Bitcoin-induced Alt coins recovery which should be more significant than Bitcoin’s own. There are two reasons for this assumption, (1) the disproportionally larger decline of most Alt coins and (2) the fact that Bitcoin remains clumsy, slow and energy-wasteful which makes Bitcoin a great experiment and a welcome first-mover but also one of the Crypto coins with the least utility. Faster and greatly improved upon Bitcoin’s algorithm, there is a wide range of coins with streamlined and easier-to-use features, faster confirmations, and equally good reputations and development teams, as a result set to recover much more significantly than Bitcoin itself — which nevertheless should be leading the way, if or when a price recovery really is sustained and starts setting in.
The price of Bitcoin in U. S. dollars and other paper currencies has seen dramatic upward moves throughout the entire second half of 2017 — if not the entire year, as Bitcoin prices have been only in the Green except for brief periods in late March and June.
The same goes for most other Crypto currencies beyond Bitcoin, including Litecoin (LTC), Dash (DASH), Ethereum (ETH), Monero (XMR), or Potcoin (POT) as well as Bitcoin Cash (BCH) which started only on August 01.
There has been a series of Bitcoin all-time highs set only during the last few days and weeks — just to be broken by even higher ones, often within a day or so.
While this is an explosive increase and more than triple the total marketcap of just six months ago, the Crypto coin asset class is still only a tiny fraction of other asset classes like bonds, stocks, commodities, or even the gold market which is rather small itself.
Presently, only a few million people worldwide own Crypto coins. This means that Crypto coin prices are set to go dramatically higher when only 1% of the global population started owning or using Bitcoin and other Crypto coins.
That situation is likely to occur sooner rather than later even though Bitcoin itself has seen rather slow adoption over the few years of its existence. Changes in U. S. income tax regulations are set to pave the way for easier adoption by granting more favourable tax treatment to Crypto coin use, providing a $600 tax-free threshold and giving Bitcoin and Alt coins the same treatment as foreign currencies like Swiss francs, Japanese yen, or Norwegian kroner. As a result, there are already rumors of large sellers considering Bitcoin acceptance, with eBay, Amazon, and a few others among them. Overstock has paved the way with their pioneering decision to start accepting Bitcoin payments back in 2014, thereby being the first large vendor to do so.
Crypto coins are a beast of its own. Attempts have been made to classify Bitcoin and other peer-to-peer decentralized Crypto coins into one asset class or the other. Some analysts (and alongside them, a number of online trading platforms) believe Crypto coins should be seen as part of the Forex market. Others would like to see Bitcoin and Alt coins as a tangible asset and part of the precious metals market. Neither of these attempts are convincing though. The truth is that, while having some similarities with others, Crypto coins are an asset class of their own.
With other coins beyond the original Bitcoin establishing themselves firmly in the overall market and gaining increasingly significant market share, the argument for seeing Crypto coins as an entire “asset class” becomes more convincing by the week. Besides Bitcoin itself, circulating since early 2009, other peer-to-peer Crypto coins have appeared. The first to follow was Litecoin (ticker: LTC) launched in 2010 and improving on a number of Bitcoins experimental features; most importantly faster confirmation (total transaction) time, a better block size capable of processing a sufficiently high number of transactions, lower energy consumption, and a dedicated and publicly known development team and lead developer. Similar things can also be said about DASH, the innovative and privacy-conscious digital cash (ticker: DASH), Z-Cash (ticker: ZEC), Ethereum (ticker: ETH), Monero (XMR), or Ethereum Classic (ticker: ETC) — all of which have gained significant market share and range from around $300m to $4bn in market capitalization. This is additional to Bitcoin itself (ticker: BTC) which has a market capitalization of over $19bn at the time of writing.
While these market capitalization figures vary widely for specific coins in the top-15 of today’s peer-to-peer decentralized Crypto coins (or simply that new “Bitcoin world”), the most significant aspect is that the overall capitalization of those top-15 Crypto coins is a combined $27.5 billion, and counting. (This figure of the top-15 Crypto coins is up from roughly $7.8bn year-on-year.)
Ripple as a rather proprietary and not truly decentralized token with its $1.2bn market value is not even included in this figure because, unlike the other Alt coins above, Ripple does not really count as a “Bitcoin flavor”. (It remains to be seen if Vitalik Buterin’s policies for Ethereum will lead ETH in a similar direction and exclusion from “real” Crypto coins.)
With Bitcoin (BTC) having increased in price for most of the current year and currently trading above $1250, price gains of all the other coins are even more impressive as they clearly do not come from movements between Bitcoin and other Crypto coins but rather from an influx of new money into the Crypto coin asset class.
This includes current demand from investors following more conventional investment styles and accompanying newsletters. It appears to be time for them to jump on the Crypto coin bandwagon in order to profit from possible price gains as this overall asset class evolves and matures. The resulting increase in demand for at least the ten or twenty top-tier Crypto coins has resulted in significant price gains against all fiat currencies like dollars, pounds or euros over the last weeks and months.
Litecoin (LTC), Ethereum (ETH), and DASH (DASH) have seen the highest price increases while proving to be most stable and not as extremely volatile as some other smaller-cap Crypto coins.
Additional fundamental factors for these coins are adding to market expectations of further price increases as these coins are set to fill an increasing number of market niches opening for coins with special features going beyond Bitcoin’s original abilities and uses.
Ethereum, the world’s second largest Crypto coin by market cap after Bitcoin, has just received another boost in both popularity and usability — and, therefore, likely price as well.
Hong Kong-based trading house Octagon Strategy have just announced that Ethereum can now be traded over-the-counter through their OTC desk. Octagon Strategy say they cater to large-volume buyers like wealth managers, mining consortiums, other institutions, and family offices.
Beyond Etherum trading, Octagon Strategy also support trading in Bitcoin and Dash at the time of writing.
Octagon Strategy’s move is expected to further boost Ethereum’s price.
The price of Ethereum has risen from around $20 in early March to over $54 and is now trading at just under $50.