If Bitcoin’s Rise Was Bad For Gold, Will Its Fall Be Good?

After an artificial pause in 2017, US government debt has resumed its inexorable climb…

US government debt gold bitcoin

…the dollar has fallen by around 5%…

US dollar gold bitcoin

… and inflation – even the massaged-beyond-recognition Consumer Price Index (CPI) – has shifted to a higher gear, driven by rising oil.

inflation gold bitcoin

All of which should be great for gold, right? Well, not so much. It’s almost exactly unchanged from last June:

gold price gold bitcoin

Gold’s failure to take off like a rocket when conditions become this favorable has been a puzzle for its fans. One explanation that has gained a lot of, ahem, currency is that it’s been replaced of late as the world’s safe haven asset by cryptocurrencies, bitcoin in particular. Bitcoin’s price action in 2017 appears to support this thesis. While gold was treading water, the capital markets may indeed have responded to the newly-inflationary environment. They just chose to hide out in cryptos rather than precious metals.

bitcoin 2017 gold bitcoin

Which makes the last few months a bit of a mystery. Most of the above inflationary macro trends are still firmly in place. But bitcoin has fallen out of favor, hard. Here’s the previous chart, extended to include the first half of 2018:

bitcoin 2018 gold bitcoin

So if global financial markets are increasingly unsettled, and cryptos have proven to be unsound hiding places, where is all the terrified capital going to scurry next?

In every cycle of the past 2000+ years, the answer has been gold and silver. Let’s see if history remains a useful guide.

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Comments

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Frank Underwood 3 weeks ago Member's comment

#Bitcoin bear market near its end. If #gold hasn’t already made a rebound it’s in for even more hurt. $BTX.X $BITCOMP $GLD

William K. 3 weeks ago Member's comment

While gold and silver have actual intrinsic value, just where does the claimed value of bitcoin come from? If hackers can "create" the value using stolen computer time, how is that producing anything that equates to actual wealth? In short, how can it actually be worth anything? It may be that other folks are beginning to see this reality, which would, hopefully, be the end of the bitcoin fad.

Dean Gilmore 3 weeks ago Member's comment

I have to agree with Susan William K., clearly #bitcoin has value or people wouldn't be hoarding billions of it. The question is, as you said, if it will have staying power. I wouldn't be surprised if it crashed to zero at some point, or was surpassed by some new cryptocurrency.

Susan Miller 3 weeks ago Member's comment

While I am not a fan of #bitcoin or any #cryptocurrency, you are wrong to say it isn't worth anything. Anything that people are willing to pay for has value. From Ty Babies, to Garbage Patch Kids, to virtual upgrades in video games - it all has value if someone will pay for it. The question of whether it is a fad is another story...