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
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.
There is a fundamental difference between the open and decentralised Bitcoin system and all other projects — whether in industry or government-backed ones — that are now claiming to “discover Blcokchain technology”, albeit 5+ years later than Satoshi Nakamoto…
These days, every would-be innovator and their grandmother believe it is “posh” to “do Blockchain technology” or what they believe to be it.
The most ridiculous attempt (so far) came out of that great City, where the Bank of England has ridiculed itself by presenting their shallow idea of “RSCoin” while claiming that this would be a “better Bitcoin”. Curiously, they have been echoed by some puppet newspapers in Britain who were fast to applaud the idea and “explain” why RSCoin, for being “backed by the trust of governments”, would be a “so much better Bitcoin”. Those explainers have only discredited themselves as to neither understanding Bitcoin technology nor doing proper news research (which would have shown why a scheme like that is stupid right away).
They should understand — or at least research until they do understand — that Bitcoin’s strength stems from solving the Byzantine General’s Problem and that this discovery is at the heart of Bitcoin technology as well as every other decentralised Crypto coin’s technology. Satoshi Nakamoto’s discovery is what made Bitcoin possible at all.
Bitcoin sacrifices a certain part of ledger efficiency for the sake of real-life decentralisation. This is made possible by using an autonomous and truly decentralised Blockchain recording Proof-of-Work calculations performed by miners who are also autonomous. As and added security feature, they are also anonymous. That way, they provide for a global, autonomous, censorship-free, and secure network.
If these features are not needed, then why use “Blockchain” technology in the first place, wasting efficiency features without any real need?
What “RSCoin” and similar not properly thought-out schemes are proposing is, in fact, a single-entity clearinghouse (run, not surprisingly, by the Bank of England in this case). The Bank of England apparently believes to be gaining some institutional advantage by pursuing this ridiculous venture, all the way failing to understand what it is they are really doing.
“RSCoin” is nothing more than a scheme built around a single-entity clearinghouse. A structure like this is known to be extremely vulnerable against all kinds of attacks, and it has already been said that cracking into this “would be a lot of fun”.
Bitcoin experts are also on record saying a single-entity clearinghouse is a ridiculously anachronistic and insecure idea that should have died two decades ago.
That would have been in the mid-1990s. The City of London’s “finest” are trying to build it now, in 2016, though. Funded by taxpayer money at that. They are also applauded by those parts of the British press even more stupid than that.
With every security breach making it into the news, some people get the impression that Crypto currencies “weren’t safe” or even “had failed” or similar. Depending on the nefarious intent behind these headlines (as in the case of established banks bashing Bitcoin as part of their agenda) this may or may not scare potential users from even thinking about using Bitcoin.
The reality is that in the Credit Card Industry over 40% of profits have to be spent for “fraud prevention” (meaning they cannot prevent most cases of fraud anyway and need the amount for compensation). Still, this hasn’t prevented anyone from using credit cards nor similar “electronic” forms of payment — yet.
Crypto coins are quite different though. The level of security only depends on whether or not prudent steps are taken by the user individually. Unlike credit cards where trust has to be given to third parties, the very nature of peer-to-peer technology means that everyone is in control of their own funds and security.
Increasing security for your Bitcoin holdings is always easiest through the use of Paper Wallets: simply move all portions of your savings to Cold Storage (i e into your paper wallet) and only keep smaller amounts needed for spending in a Desktop wallet, online wallets, or less-secure exchange portfolios and similar places.
(A paper wallet is a simple piece of paper run from your printer — preferably a “dumb” one without Wi-Fi or similar security loopholes — containing your public address for deposits along with its private key for retrieval.)
That way, you are not only “your own bank” but (at least!!) as safe as one as well.
If you want to read something really stupid about the very central bankers responsible for 2008’s economic crisis, then you might want to read that article. No one there is even getting the first thing about Bitcoin’s true innovation for being trustless and peer-to-peer decentralised in nature. The article entirely fails to even scratch on the implications of Satoshi Nakamoto’s solving the Byzantine General’s problem and thereby succeeding with managing distributed consensus for the first time in history. As every mathematician or computer scientist will confirm, this is the actual importance of “Bitcoin” and “Blockchain technology” though. Introducing some central-planners-controlled “RScoin”, the Bank of England’s latest brain fart, proves to only be yet more of the same: namely another attempt of the state at humanity, at freedom, and thus at everyone of us — backed by yet more state-control, central planning and government power. It also proves that governments are having a very hard time moving beyond the technological level of horse-drawn carriages and gunpowder.
With the alleged “trust” of RScoin, sold to us as an “advantage”, the real trouble proves to be the lack of this very trust when people are supposed to put it in governments once again, and after governments and banking elites have empoverished the world for much more than merely the Federal Reserve’s 103 years of existence now.
At least, a “competing currency” RScoin is though. So let us see how this will play out. Let us see how, and if so, it really can compete with Bitcoin and Alt coins at the end of the day.
The price of Bitcoin in US dollars is currently trading around a significant level. Bitcoin price history shows the rough $420 to $440 area to be a repeated level of support. Conversely, this level is now a rather strong line of resistance on Bitcoin’s renewed way up.
With a large flat-top triangle currently forming at this level, Bitcoin prices are preparing to rise more significantly. We may expect larger movements to the upside, once this level is cleared.