Could gold and bitcoin be headed for parity?

Here’s a lightly edited version of an article I published on the http://www.sharpspixley.com website.  To read the original article click here.

At current prices with gold closing last week back over $1,200 and the bitcoin BTC token at around $6,600, the idea of gold and bitcoin regaining parity they last saw a year and a half ago might seem a little far fetched. But Bloomberg Intelligence’s Mike McGlone seems to think otherwise. In a report earlier this week, he painted a scenario of the BTC price falling and gold rising which could bring the two back into parity.

McGlone’s hypothesis is that market volatility, particularly in the bitcoin price, is an important indicator which investors need to watch. After all, bitcoin has already fallen from its peak of almost $20,000 achieved only seven months ago, to its current levels – a fall of nearly 70% – and he sees another similar fall, coupled with a possible pick-up in the gold price as being a distinct, but perhaps arguable, possibility.

As readers will be aware, this commentator is no believer in bitcoin. We feel there is no substance behind it. It is only worth what people are prepared to pay for it. It has no real inherent value having been purely a computer creation. I read somewhere that one observer (Richard Bernstein) likened it to a Candy Crush token which struck me as being extremely apposite. As people fall out of love with bitcoin – and it will have lost a lot of adherents with its fall from last December’s peak – the potential for it to fall back towards zero is, to my mind, a strong one. Bitcoin itself (BTC) is currently struggling to stay above the $6,000 mark despite a concerted campaign by pro-bitcoin commentators to drive it back up – many will probably have a vested interest in high crypto-currency prices. If it does come back down to the $5,000s or below this could signify a stronger fall ahead.

We tend to watch some of the other less costly cryptos as a guide and the fall of these from their respective peaks has been immense. Ethereum, probably the second highest market cap cryptocurrency, for example is nowadays comfortably below the $300 mark. It peaked in January at just under $1,400, so it has seen a fall of over 80% in around seven months. Monero, reputedly the crypto of choice for ransomware scammers and the criminal element wishing to keep transactions out of sight of the law and the tax collectors, is also down over 80% from its December 2017 peak and most of the other minor cryptocurrencies are also down by similar percentages or more.

Gold, on the other hand, despite it having been having a particularly torrid time of late is only down by 12% from its peak this year in U.S. dollars and beginning to pick up again as the dollar turns weaker. Unlike the cryptocurrencies, gold has stood the test of time as a store of value and does at least have substance behind it.  The recent price fall has been all about dollar strength after a period of sustained decline, and perhaps we are due a reversal again as the real ramifications of the confrontational U.S. trade tariff impositions begin to sink in in terms of raised prices, and thus inflation, in the U.S. domestic economy.

We see gold’s long term fundamentals as strong. Even if we are not quite yet at peak gold we are there or thereabouts and global new mined production will start to decline – and once the decline starts it will accelerate as there has been a huge drop in gold exploration and new mega-project construction necessary to replace depleting older assets. Meanwhile global incomes in the emerging gold buying nations are rising and the longer term increase in demand likely to be thus generated, coupled with eventually declining output, will put the gold price under some strong positive pressure.

Gold at the moment is being squeezed by the strong dollar brought on by President Trump’s tariff war and the prospect of rising U.S. Fed interest rates. But Trump is beginning to recognise that the strong dollar is putting U.S. exporters at risk while mitigating the pricing effects of the tariffs and is unhappy with this. How long before he initiates steps, perhaps behind the scenes, to start to bring the dollar down with a corresponding uplift in the gold price?

Back to Bloomberg’s McGlone: he comments that “Bitcoin is down to about 5x the price of gold after stretching toward 15x. There’s little to prevent another four-turn reduction to get it back toward 1-to-1, in our view”.

He also feels that the gold market is about to start picking up again. He pointed out that gold’s 90-day volatility is at its lowest level since 1999, at the same time its 60-day volatility is at its lowest level since 1997 and that the last time volatility was this low, the price entered a three-week rally which saw it pick up 34%. A similar increase now would put the price back to close to $1,600 and that it only needs a minor spark to ignite such a change in perception. There are plenty of geopolitical uncertainties out there which could initiate such a spark. Gold investors will hope McGlone is at least halfway correct in his analysis. Bitcoin investors will be less enamoured!

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Gold and Silver consolidating as U.S. dollar bull market ending

Gold Today Gold closed in New York at $1,225.00 down from $1,241.30 on Wednesday. On Thursday morning in Asia, it rose to $1,235. London pulled it back to see the LBMA price setting at $1,233.60 down from $1,238.30 yesterday.

The dollar index fell to 94.51 down from 95.84 yesterday. The dollar is weaker against the euro at $1.1380 after yesterday’s $1.1330.

The gold price in the euro was set at €1,085.39 down from €1,092.94 on Wednesday.

Ahead of New York’s opening, the gold price was trading at $1,235.85 and in the euro at €1,085.98.  

Silver Today –The silver price closed in New York at $15.22 down 11 cents on Wednesday. Ahead of New York’s opening the silver price stood at $15.40.

Price Drivers

The Fed – End of the Dollar Bull Market With gold now consolidating at current levels, the comments by Janet Yellen continue to impact global markets with equity markets surging and dollar continuing to slip against all currencies.

Please note, we were the first to call an end to the dollar ‘bull’ market.

This view is now spreading with Janet Yellen’s comments of concern on the global economy and the strong dollar confirming the ‘official’ view. The U.S. Treasury is silent, even though it is in their department, because we believe, that with the audience the Fed has in the media, the message was given full force when she gave it. It’s the end of the dollar’s bull market, because the Fed and the Treasury want that to be so.

The Fed is telling us all that the U.S. and its dollar cannot walk its own road with the rest of the world following. It’s very much a part of the global economy and will not tolerate other nations devaluing against it. This underpins the gold price and neutralizes the so called reverse link between the dollar and gold.

This now allows investors to look at the future prospects of markets with a clear eye and look at gold. They will see peaks in equity markets soon, as these rise on factors other than prospective growth. We are in a world where growth is expected to plateau or fall as equity market rises are caused by monetary factors, not genuine growth prospects. This makes them susceptible to volatility and uncertainty.

We are hearing more and more institutions considering gold and silver as alternatives to equities and other investments.

Gold ETFs For the second time in a long time we saw sales of 1.189 tonnes of gold from the SPDR gold ETF but none from the Gold Trust, yesterday. This leaves their holdings at 819.282 and 185.88 tonnes in the SPDR & Gold Trust respectively. These sales did not move the gold price, but may have acted as a restraint on the rebound.

Silver – The silver price remains locked onto gold’s moves and rose slightly yesterday, but promises more rises shortly.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Rapidly Weakening Dollar Boosts Gold and Silver Prices

We have been talking about a restraint on the dollar for weeks now. The U.S. does not want a strong dollar is our theme. Having failed to break through the 100 level on the index, the advent of bad data from the ISM index falling to 53.5% from 55.8% in December and no doubt more subsequently, tells us the U.S. economy is slowing. Companies in the U.S. service sector such as retail, banking and health care grew in January at the slowest pace in almost two years.

The global economy is slowing even faster too. The low oil price is a reflection, more of slowing demand than of oversupply.

For years now the global economy has relied on a recovering U.S. economy, so now we are not looking at a flowing economic tide but an ebbing tide there. The dollar dropped heavily against all currencies and commodities and precious metals. This again is a sea change from the last 8 years and particularly prejudicial against all those currencies that have been trying to weaken against the dollar. We expect to see larger and more negative interest rate levels across the world in 2016, as competitive devaluations increase. This will be destructive to the global monetary system.

The gold and silver prices are reflecting growing demand but also the rapidly weakening dollar and still have a long, long way to go before reflecting what we have written here.

Wednesday saw another large purchase of 4.461 tonnes yesterday making purchases of over 20 tonnes this week alone! The Gold Trust saw a relatively huge 3.7 tonnes added to the Gold Trust. The holdings of the SPDR gold ETF are now at 690.051 tonnes and at 170.56 tonnes in the Gold Trust. The ongoing large purchases are forcing the gold price up. Bear in mind gold prices are driven by U.S. demand almost exclusively as Asian demand appears to fail to affect gold prices, yet. The gold price picture remains technically positive.

The gold and silver markets

The New York gold price closed Wednesday at $1,142.10 up from $1,129.60 up $12.50. In Asia on Thursday, it held there ahead of London’s opening and then the LBMA set it at $1,146.25 up from $1,130.00 up $16.25 with the dollar index down at 96.66 down from 98.64 on Wednesday. The dollar was much weaker against the euro at $1.1180 up from $1.0919 against the euro. The gold price in the euro was set at €1,025.27 down from €1,034.89. Ahead of New York’s opening, the gold price was trading at $1,146.5 and in the euro at €1,025.49.  

The silver price in New York closed at $14.65 up 34 cents at Wednesday’s close.  Ahead of New York’s opening, the silver price stood at $14.76.

Silver is now outperforming gold.

Julian D.W. Phillips for the Gold & Silver Forecasters- www.goldforecaster.com and www.silverforecaster.com

 

Dovish message from Fed sees gold little changed

The New York gold price closed at $1,073.30 up from $1,060.90 on Wednesday’s close.  In Asia prices pulled back to $1,064.00 before London took it back up to $1,064, as the dollar index rose to 98.83. The euro fell back to $1.0849 down from yesterday’s $1.920 down ¾ of a cent from Wednesday’s against the dollar. The London a.m. LBMA gold price was set at $1,065.85 up 10 cents from Wednesday’s $1,065.75.  In the euro the fixing was €982.26 up from yesterday’s $975.60. Ahead of New York’s opening, the gold price was trading at $1,067.85 and in the euro at €984.19.  

The silver price in New York closed at $14.15 up 40 cents. Ahead of New York’s opening the silver price stood at $14.12.

Price Drivers

The hike of 0.25% in interest rates yesterday appears to have been priced in by most markets across the globe. The message we got from the Fed was that while they have broken the pattern of near zero interest rates, there may be two small rate hikes in 2016, but the Fed will keep its eyes on data for guidance. It was clearly concerned with the U.S. economy, its inflation rate, and the dollar.

It was a very dovish message which we feel lowered interest rate expectations and ensured there was no rush to the dollar in foreign exchanges. As we said yesterday, the move, we see was, “All about the dollar’s exchange rate. We reiterate our oft stated fact that the U.S. can no longer afford a strong dollar if it is to keep its ‘moderate’ recovery intact.”

We do not expect a much stronger dollar than at present, in 2016, which, by extensions means that the euro is unlikely to fall in 2016, taking gold and silver with it. The dollar exchange rate may well lead [alongside other pertinent factors] the Fed on interest rates and not interest rates lead the exchange rate in future Fed decisions.

We have never experienced COMEX so short and ready for a fall. So, what will speculators and dealers do from now on? Will they follow the Technical picture on gold and silver or will they follow the €: $ exchange rate as they have been doing for the last few years?

The first indication is positive on this front, as a ‘put’ option, giving owners the right to sell January futures at $1,000 an ounce, the most-traded option on Wednesday, plunged 46% after the Federal Reserve rate decision. The second-most traded option was a call giving the right to buy January futures for $1,100, which rose 50%, followed by February $1,000 put that slid 37%. Let’s see what follow through there will be from now on?

We note that there have been no sales or purchases from or to the SPDR gold ETF in the U.S. The holdings of the SPDR gold ETF remain at 634.63 tonnes and now at 155.87 tonnes in the Gold Trust.

The silver price will follow gold and the euro again.

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.silverforecaster.com

Dollar index breaches 100 and gold slips accordingly

New York was closed yesterday.  In Asia prices were pulled back to $1,068 as the dollar went stronger again, taking the dollar to 100.08 on the dollar index. The LBMA price setting fixed it at $1,064.65 down from 41,072.50 down $7.85 on yesterday’s LBMA price setting. The dollar is at $1.0590 up from $1.0615 against the euro.  In the euro the fixing was €1,005.43 down from yesterday’s €1,008.81.  Ahead of New York’s opening the gold price was trading at $1,073.00 and in the euro at €1,007.13.  

New York was closed for Thanksgiving yesterday. Ahead of New York’s opening the silver price stood at $14.10.

Price Drivers

With the gold price now holding below $1,080, despite attempts to break higher gold is moving lower as the dollar rises in all currencies.

Today sees New York re-open, but London is leading the way as it moves the gold price in line with the dollar index and the euro. Today’s jobs report today may well move the dollar strongly if there is no action by the Treasury to prevent that today. This will, in present market conditions, send the gold price lower.

The holdings of the two gold ETFs, the SPDR gold ETF and the Gold Trust remain at 655.692 tonnes in the SPDR gold ETF and at 159.52 in the Gold Trust.

It is clear that with the E.C.B.’ implied moves soon to weaken the euro that there is a ‘currency war’ underway. Until now the U.S. has been quiet as it watched both the Yen and the euro weaken heavily against it. The euro has fallen from a peak of $1.40 and the yen from 76 against the dollar to 122.5 against the dollar.  Now the E.C.B. is making further moves to weaken the euro still further. If this has not been agreed with the U.S. then we expect retaliation by the U.S. Treasury even if it simply to weaken the dollar. If it fails to do that the damage to the U.S. recovery will be significant as it loses competitiveness internationally, weakening exports and inciting more imports, both of which will hurt the U.S. economy.

To us it is clear that the Chinese need to weaken the Yuan as it should not have climbed as the dollar has. No doubt if the Yuan weakens there will be howls of ‘currency manipulation’, even though there has been silence about exactly the same in Japan and the Eurozone.      

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.silverforecaster.com

$1080 level pivotal to where gold is now headed

New York closed at $1,075.40 up from $1,068.70.  In Asia prices were lifted to $1,080 as the dollar slipped. The LBMA price setting fixed it at $1,072.20 down from $1,073.00. The dollar Index is just about to break through the 100 level and stands now at 99.96 this morning up from 99.42 yesterday morning. The dollar is at $1.0593 down from $1.0621 against the euro.  In the euro the fixing was €1,012.23 up from yesterday’s €1,007.13.  Ahead of New York’s opening gold was trading in the dollar at $1,074.55 and in the euro at €1,014.40.  

The silver price closed at $14.17 up 6 cents on yesterday. At New York’s opening, silver was trading at $14.12.

Once again the dollar exchange rate is the main issue in all markets. It is now attacking the 100 level at 99.95. As we said yesterday we expect the dollar to move sideways, if it fails to break through 100 but for gold in the dollar to fall, but in the euro to rise as you see above. The deciding factor is likely to be the jobs report on Friday, which markets are now interpreting as a decisive factor in whether the Fed will lift interest rates in December.

The remaining question is, “Have global markets factored that in?” We believe U.S. markets have but E.U. markets are doing so only now. We wait to see what the Treasury will do. The $: € exchange rate will reflect this. The euro is now in new territory as it falls.

While the gold price rallied to $1,180 this morning, it needed to break up through $1,180 before it could be said to have turned upwards.

The holdings of the two gold ETFs, the SPDR gold ETF and the Gold Trust were unchanged yesterday and remain at 655.692 tonnes in the SPDR gold ETF and at 160.27 tonnes in the Gold Trust. We watch these ETFs because they are representative of U.S. investor attitude to gold. The day-to-day figures are not as important as the overall pattern. Apart from one week where we saw around 27 tonnes of gold sold, sales from these funds are very small compared to 2013 when these holdings plunged over 900 tonnes in the year.

U.S. physical sales of gold have diminished considerably indicating that overall profit-seeking investors are out of gold, leaving holders who are not concerned about the falling price, but concerned about the long term health of the global monetary system in the future. If these gold investors form the main holders then U.S. sales of physical gold from the ETFs will be limited and then the influence on the gold price in the U.S. will come exclusively from the non-physical COMEX traders. As of now they are very short of gold so any turn up is likely to see them change positions and accelerate any rises.  

Right now the +$1,080 level is pivotal to the direction of the gold price in the near term.

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.silverforecaster.com

Is $1080 a bottom for gold – or will falls continue?

The Gold price is at a critical juncture at just above $1,080. This is now a near perfect double bottom. Overnight Thursday the dollar, currencies and the gold price were relatively stable. The day saw the gold price fall to $1,076 at one point before leaping up to $1,089, before falling back to finish, as we showed above. So the question is, “Is this a bottom for gold or will the $1,080 level be ignored and the falls continue.”

Again, we point out that the dollar has not broken through the 100 level on the dollar Index. Thursday saw several Fed heads virtually confirm a December rate rise, no doubt trying to gauge reactions, not only in the U.S. but globally. That’s why we were watching the dollar so carefully. We re-emphasize that the U.S. cannot afford a stronger dollar, but it looks like it wants to go that way.

Meanwhile the E.U. has a day or reporting GDP in key member states. Draghi clarified that the ‘risks are to the downside’ on several fronts including inflation. It seems the use of the word deflation is too horrible to contemplate, despite its almost undeniable presence. Let’s be clear on this, growth at 0.4% can hardly be called such and could turn down very easily. This paves the way for even lower interest rates and more stimuli [and a lower euro?] in December. So prepare for turbulence in foreign exchanges!

There were sales from the SPDR gold ETF of 1.489 tonnes of gold but no sales from the Gold Trust. The holdings of the SPDR gold ETF stands at 661.943 tonnes in the SPDR gold ETF and at 159.85 in the Gold Trust. These sales had small impact on the gold price

Silver prices are marking time waiting for gold to give them direction.

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.silverforecaster.com

 

Don’t short the Euro – Draghi. Contrarian indicator?

Julian Phillips’ comments on the gold and silver markets today and factors driving the prices.

New York closed at $1,204.50 up $5.50 on Friday in NY. Asia took it up to $1,208 with London holding it there ahead of the LBMA Gold Price. The LBMA Gold price was set at $1,203.25 down $1.30. The euro equivalent stood at €1,118.83 up €7.11 against a weaker $: € rate of $1.0753 against yesterday’s $1.08355. Ahead of New York’s opening, gold was trading lower in London at $1,198.30 and in the euro at €1,115.68.

The silver price closed at $16.26 down 3 cents on Friday. Ahead of New York’s opening it was trading at $16.05.

The dollar began the week at $1.0781 and the dollar index at 97.52 showing a consolidating dollar more than a rising euro. Gold moved through its trading range, ahead of New York’s opening. Once again the gold price was essentially moved sideways ahead of New York’s opening confirming the tightness of the trading range implying a strong move anytime.

The E.C.B.’ Draghi told the media on Friday that it was pointless to short the euro. History shows that when a central banker attempts to stall the movement of a market trend, it is taken as an incentive to do the opposite. We don’t see why this time an exception should be made. As we said last week, “The factors that drove the dollar higher remain in position and the trend remains for a stronger dollar.” After all, the E.U. is gaining competitiveness enormously by the fall in its exchange rate.

To us the Greek situation is becoming more transparent as Greece said it won’t renege on election pledges to end austerity measures. The Deputy Prime Minister said, “We don’t budge from our red lines.” Now look at the laid back attitude of the Prime and Finance Ministers of Greece and we see them waiting for the E.U. to give a solution as they are unlikely to do more. Unless the E.U. offers more money Greece will be ejected from the euro. The tragedy will therefore grind on until June with the euro tending to weaken until then [we remind readers that  the euro trend is down while E.U.Q.E. continues through to Sept 2016].

There were purchases of 2.988 tonnes into the SPDR gold E.T.F. but no change in the Gold Trust on Friday. The holdings of the SPDR gold ETF are at 739.069 tonnes and at 165.28 tonnes in the Gold Trust.

From today onwards we expect Indian demand to subside as the festival season comes to an end.

Julian D.W. Phillips for the Gold & Silver Forecasters- www.goldforecaster.com and www.silverforecaster.com