Are Cryptocurrencies the Tulips of the 21st Century

Investor sentiment in gold and silver market has turned quiet of late. Record setting levels in equity markets are one culprit for sure. Another is the exciting drama about GameStop investors who are “sticking it to the suits”. However, the most recent buzz is all about cryptocurrencies and Bitcoin’s revival and skyrocket to over US$52,000, an increase of more than 300% since August of 2020. Elon Musk’s recent endorsement of the cryptocurrency coincided with a $1,000 one day rise and drastic increase in Google trend searches.  

New technology and massive interest in speculative assets are a phenomenon that has jeopardized investors throughout history. One of the best-known classic examples that appears in many economic and financial textbooks is the Dutch tulip bulb market bubble known as ‘Tulipmania’. The obsession to own tulips began in earnest in 1634, and by 1636 demand had increased so much that contracts were established on the stock exchange of Amsterdam, this enabled investors to use margined derivative contacts – this is when the price skyrocketed. Then in February 1637 prices began to plummet and many investors were left holding tulip bulbs that they could not sell to repay the loans.      

Are Cryptocurrencies Halfway to Tulipmania?

Tulip Price Index Graph 1636-37
Tulipmania – Tulip Price Index 1636-37

A second classic example of overexuberance in markets is the British Railway mania between 1843 and 1845. The rapid expansion of the railway system across Britain and Ireland brought even more speculation and companies to the industry with more than 9500 miles of railway being proposed by 1844. By 1845 many of the newly formed companies began running into financial difficulty. Overinvestment coupled with the Bank of England raising interest rates moved investors away from railways back toward bonds and ended the railway mania. Rail companies went bust and investors were left without any means to recoup their investment. The boom followed by bust did provide for larger railways to strategically purchase smaller companies at a fraction of their replacement costs of expansion. 

Watch Now: Should I Buy Gold or Bitcoin?

Two recent examples of recent market bubbles are the Japanese stock and real estate bubble and the Dot-Com bubble. The rapid increase in Japanese stocks and real estate in the mid to late 1980s was driven by increased interest and speculation in rapidly rising Japanese growth companies. Then foreign investment drove the value of the yen up 50%, which in turn hurt the export profits of the companies.    

The Dot Com bubble was driven by speculation in the viability of US technology companies – from 1995 to 2000 the NASDAQ index increased five-fold.    

The definition of a speculative bubble is…

a spike in asset values within a particular industry, commodity, or asset class to unsubstantiated levels, fueled by irrational speculative activity that is not supported by the fundamentals

investopedia.com

There is no doubt that there were millionaires made as the asset price rose in each of the previously mentioned speculative bubbles, but there were also paupers made as prices came tumbling down. The current exuberance and speculation in bitcoin, and subsequent exponential rise has all the characteristics of a classic speculative asset building to a point of deflating.

Cryptocurrencies – The Dramatic Rise of Bitcoin

Cryptocurrencies Rise - Bitcoin Price Chart 2016 to 2021

The permanent stability of bitcoin has yet to be determined. One of the characteristics that is touted as a benefit of cryptocurrencies is that they are decentralized and there is not a central authority that manages the value of the cryptocurrency.  

The risk to this is regulation that limits or prevents cryptocurrencies being used for transactions within an economy.  A proposal to ban all cryptocurrencies in India is already in progress, it is likely that other governments will soon follow.

The taxation of Bitcoin and similar currencies is still uncertain, due to the nature of its anonymous ownership. However, if governments do allow for purchases within their respective economies how these transactions are taxed has yet to be seen. Furthermore, Bitcoin as a medium of exchange is limited as Bitcoin can currently only process ~ 4 transactions per second, compared to Visa’s processing capacity of 1,750 per second.

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The relative short history of Bitcoin, the first of the cryptocurrencies which was launched in 2008, and the high volatility creates uncertainty about the store of value. Over the last 10 years Bitcoin’s monthly price volatility has ranged from 5% to 30% (monthly rolling average). At 10% assumed volatility for Bitcoin: $52,000/coin the standard deviation is ~ 5,200 … not many investors can handle these types of swings in their portfolio. The wide price fluctuations also make it challenging to price goods and services in Bitcoin. Therefore, making it not a reliable unit of account.

Although, bitcoin is the first and arguably the most well-known of the cryptocurrencies, Ethereum, XRP, Tether, Litecoin to name a few, but there are many others that are gaining popularity, this adds competition risk to investing in one type of cryptocurrency. Also there are unknown security risks such as loss or destruction of the private key and cyber-security risks including malicious activity.

There are many other questions yet unanswered about the permanent stability of bitcoin. Will the ESG investing community, which holds immense clout over capital flows [see: coal] decide that bitcoin is too environmentally unfriendly? If ‘holding’ bitcoin fuels the rally, how can holders ever sell without ending the rally? The Ontario Securities Commission has approved a bitcoin ETF – will financialization accelerate a rally or end a rally? TESLA owns digital currency on its balance sheet – is selling cars for bitcoin their latest business model?

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NEWS and COMMENTARY

Gold Gains From Near Two-Month Low as Dollar Strength Eases 

Could Silver “Do a Palladium”? (SilverSeek) 

We were ‘dangerously close’ to collapse of ‘entire system’ — GameStop hearing 

GOLD PRICES (USD, GBP & EUR – AM/ PM LBMA Fix)

17-02-2021 1788.85 1780.70 1289.76 1285.84 1482.78 1479.05
16-02-2021 1823.45 1794.25 1309.78 1292.94 1499.61 1482.23
15-02-2021 1817.45 1817.30 1306.56 1307.18 1497.94 1498.73
12-02-2021 1818.00 1816.35 1318.05 1313.95 1501.49 1501.76
11-02-2021 1841.70 1840.10 1331.92 1331.68 1518.67 1516.06
10-02-2021 1843.45 1842.65 1331.89 1330.76 1520.11 1519.63
09-02-2021 1846.55 1839.60 1341.15 1334.45 1525.25 1520.80
08-02-2021 1811.65 1835.25 1323.59 1336.43 1506.75 1522.16
05-02-2021 1808.55 1802.95 1320.60 1313.81 1510.14 1499.87

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Original source: https://news.goldcore.com/are-cryptocurrencies-the-tulips-of-the-21st-century/

$1.9 Trillion American Rescue Plan Positive for Gold

The Massive $1.9 Trillion American Rescue Plan is Just the Start

  • Massive $1.9 Tr. American rescue plan to affect markets
  • Yellen takes over at US Treasury, what to expect
  • More spending initiatives to come
  • How all this is positive for gold and silver prices

The Biden Administration’s policies are positive for gold and silver prices. The $1.9 trillion – American Rescue Plan released on January 14 is just the beginning of spending initiatives. The plan is chocked full of both direct spending initiatives to combat the negative economic effects of the coronavirus, but also has sprinklings of campaign promise initiatives the administration will focus on getting passed.

An overview of the proposed American Rescue Plan:

$1 trillion in direct aid to families including: a $1400 per-person check to most Americans; provide rental, food, childcare, healthcare, and utility assistance; expand paid leave and extend the unemployment benefit through September and increase it to an extra $400 per-week supplement; and expanded financial assistance to university students.

$450 billion for communities and improved IT infrastructure: $350 billion of this is earmarked to support to first responders and other essential workers; the remining $90 billion is made up of initiatives which include small business grants; and support for tribal governments and transit agencies. $10 billion for improved federal information technology, with the majority of this is an initiative to launch a major new IT and cybersecurity shared services. 

$400 billion for national vaccination plan and school reopening: this includes expanded coronavirus testing and expedited national vaccination roll-out plan, and funds to help schools with safe reopening.

In additional to the initiatives the Biden plan proposes raising the minimum wage to $15 per hour, which is one of Biden’s main campaign policies. In fact, taking a moment to look back at Biden’s campaign policies the American Rescue Plan touches on many of them, such as “universal paid sick days and 12 weeks of paid family and medical leave”, free public university tuition for families that earn less than $125,000, increased national health care coverage (through both reversing Trump’s cuts to the Affordable Care Act and lowering the eligible age from 65 to 60 for Medicare coverage. The common denominator for all initiatives is more federal spending and support for individuals.


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It goes without saying that the Administration’s cabinet nominees will support these initiatives – the focus being on incoming US Treasury Secretary Janet Yellen. In her confirmation hearing on Tuesday, she told lawmakers…

“…without further action we face a longer more painful recession now and longer-term scarring with the economy later … neither the president-elect nor I proposed this relief package for an appreciation for the countries debt burden but right now with interest rates at historic lows the smartest thing we can do is act big …”

Dr. Yellen went on to tell lawmakers that…

people worry about a K-shaped recovery but well before Covid-19 infected a single American we were living in a K-shaped economy, one where wealth built upon wealth while working families fell further and further behind, this is especially true for people of colour, at the Fed I became accustom to the institution’s dual mandate to promote stable prices and maximum employment, as Treasury Secretary I think there will be a dual mission too, helping Americans endure the final months of this pandemic keeping people safe while getting them back to work that is our first task, but then there is the longer term project, we have to rebuild our economy so that it creates more prosperity for more people and ensures that American workers can compete in an increasingly competitive global economyIt will be my core focus … to focus on American workers living in cities and rural areas and to make sure that we have a competitive economy that offers good jobs and good wages …

Dr. Yellen is known as a Keynesian economist, meaning that governments should increase spending to support the economy during times of economic downturns, which is very evident in her testimony.  The other topic very evident, is her work as a labour economist has focused on wage gaps and policies to reduce income inequality – a topic Biden also spoke about often on the campaign trail.

I will be focused day one on providing support to America’s workers and to small businesses, putting into effect as quickly and efficiently as I can, the relief in the bill that was recently passed, and then over time working for a second package that I think we need to get through these dark times … but over time I look forward to working with President Biden and his team to build back better and to address many of the challenges that have faced America and had an adverse impact on America’s workers and small businesses. We need to invest in our infrastructure, we need to invest in R&D, we need to invest in training and workforce development, so that we have an economy that is productive and competitive so that workers and families can thrive.”

So, how is all this positive for gold and silver prices?

The $1.9 trillion American Relief Plan is only the first of many spending initiatives. Others will follow to further support lower-income households, small businesses, and university students; remember Biden’s campaign policy of free public university tuition for families that earn less than $125,000. Increased spending on infrastructure and R&D is also in the cards.

Gold Price and US Dollar Index

Low US government borrowing costs are essential in order for the US government to service the massive debt burden. This is where the Federal Reserve comes in, to not only keep short-term interest rates low, but to also help keep longer-term interest rates low. The Fed can achieve this through some sort of yield curve control scheme. The Fed’s own forecast is for real short-term interest rates to decline to minus 1.62% in 2023. A key factor for gold and silver prices is the US dollar. The Administration’s policies will put downward pressure on the dollar. Although, Dr. Yellen said that the

The value of the U.S. dollar and other currencies should be determined by markets. Markets adjust to reflect variations in economic performance and generally facilitate adjustments in the global economy … United States doesn’t seek a weaker currency to gain a competitive advantage …”, However, she went on to say, “We should oppose attempts by other countries to do so.”  

Silver Price and US Dollar Index

Specifically, she pointed out that the US needs to address the issue in respect to China…

“we need to take on China’s abusive, unfair and illegal practices, China is undercutting American companies by dumping products, erecting trade barriers, and giving illegal subsidies to corporations, it has been stealing intellectual property and engaging in practices that give it an unfair technological advantage, including forced technology transfers. And these practices including China’s low labor and environmental standards are practices that we are prepared to use the full array and tools to address.”

A lower US dollar will also be a huge step in the US reducing its massive trade deficit, which reached a new record in November 2020, the latest month data is available.     

NEWS and COMMENTARY

Stocks Rise to Record on Hope for New Aid Bill 

Gold gains over 1% as focus turns to Biden administration 

Gold scales 2-week high as dollar slips on stimulus optimism 

GOLD PRICES (USD, GBP & EUR – AM/ PM LBMA Fix)

20-Jan-21 1854.60 1856.60 1354.23 1360.70 1530.42 1536.15
19-Jan-21 1843.10 1834.70 1353.20 1347.59 1519.82 1512.89
18-Jan-21 1852.40 1858.85 1354.85 1362.17 1521.56 1527.97
15-Jan-21 1853.85 1839.00 1357.57 1352.40 1527.20 1519.93
14-Jan-21 1840.25 1841.75 1347.62 1349.82 1513.05 1519.63
13-Jan-21 1852.40 1858.85 1354.85 1362.17 1521.56 1527.97
12-Jan-21 1861.85 1841.25 1369.58 1353.87 1531.93 1515.35
11-Jan-21 1847.80 1847.25 1369.59 1371.58 1520.19 1521.21
08-Jan-21 1891.30 1862.90 1391.81 1371.28 1545.19 1521.06
07-Jan-21 1911.05 1920.10 1406.34 1415.11 1559.23 1566.03

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Original source: https://news.goldcore.com/the-1-9-trillion-american-rescue-plan-positive-for-gold/

Four Key Reasons Gold Can Enhance Your Portfolio

Why buy gold? The Relevance of Gold as a Strategic Asset report released by the World Gold Council offers four reasons to add gold to your portfolio. What makes gold a strategic asset in the first place? The World Gold Council provides a quick summary of gold’s qualities. Gold benefits from diverse sources of demand: […]

The post Blog first appeared on SchiffGold.

Original source: https://schiffgold.com/key-gold-news/four-key-reasons-gold-can-enhance-your-portfolio/

[GoldCore TV] Should I Buy Gold or Bitcoin?

Should you buy gold or bitcoin?

A lot of prospective gold investors are watching the meteoric rise of Bitcoin and fear they are missing out.

In today’s video GoldCore CEO Stephen Flood, explains the differing roles that both of these investments play in a well diversified portfolio. And while strong gains have been had in the bitcoin market, this should not be confused with gold’s role as a safe haven, store of wealth.

Click the video below to learn more…

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NEWS and COMMENTARY

Gold range-bound as focus shifts to Fed policy decision 

Dollar on back foot with Fed’s Powell likely to sound dovish note 

S&P 500 scales new high on upbeat corporate earnings 

Gold or Bitcoin

GOLD PRICES (USD, GBP & EUR – AM/ PM LBMA Fix)

26-01-21 1853.20 1856.60 1356.73 1352.53 1527.22 1526.31
25-01-21 1855.60 1856.85 1356.63 1359.03 1527.16 1531.34
22-01-21 1853.60 1852.70 1357.21 1356.18 1522.36 1521.80
21-01-21 1867.65 1862.10 1361.14 1356.35 1538.57 1532.14
20-01-21 1854.60 1856.60 1354.23 1360.70 1530.42 1536.15
19-01-21 1843.10 1834.70 1353.20 1347.59 1519.82 1512.89
18-01-21 1833.95 1833.05 1354.19 1351.32 1520.71 1518.50
15-01-21 1853.85 1839.00 1357.57 1352.40 1527.20 1519.93
14-01-21 1840.25 1841.75 1347.62 1349.82 1513.05 1519.63
13-01-21 1852.40 1858.85 1354.85 1362.17 1521.56 1527.97

Buy gold coins and bars and store them in the safest vaults in Zurich, Switzerland with GoldCore.

Learn why Switzerland remains a safe-haven jurisdiction for owning precious metals. Access Our Most Popular Guide, the Essential Guide to Storing Gold in Switzerland here

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$30 Silver Is Quite a Bargain

Silver enjoyed a moment in the spotlight when the Reddit Raiders turned their attention to the white metal. The online investors weren’t able to pull off a short-squeeze in the silver market, but we’ve said all along that there are fundamental reasons to be bullish on silver.  Given the supply and demand dynamics coupled with the […]

The post Blog first appeared on SchiffGold.

Original source: https://schiffgold.com/key-gold-news/30-silver-is-quite-a-bargain/

US Government Runs Another Massive Budget Deficit in January

After running the biggest December budget deficit in history, the US government followed up with another massive budget shortfall in January. According to the Monthly Treasury Statement, the January deficit came in at $162.83 billion. That’s nearly five times bigger than the January 2020 shortfall. That brings the total deficit for fiscal 2021 to $735.73 […]

The post Blog first appeared on SchiffGold.

Original source: https://schiffgold.com/key-gold-news/us-government-runs-another-massive-budget-deficit-in-january/

Gold, the Tried-and-True Inflation Hedge for What’s Coming!

Global confirmed coronavirus cases surpassed 100 million this week. There is no denying that the coronavirus pandemic has caused tremendous hardship and loss. To mitigate new cases climbing further, stricter lockdown and travel restrictions are being announced and implemented, with the curfew in the Netherlands as an example. Lock-down fatigue, as evidenced by the riots against this implemented curfew, is growing. Through it all, hope is on the horizon as vaccine roll-out plans are being implemented. Many governments continue to aim for herd immunity by autumn of this year.

Massive fiscal and monetary stimulus has been pumped into economies around the world to help ease the economic devastation for both individuals and businesses. Building on hope for herd immunity being reached and restrictions being lifted towards yearend, the question arises: Is CPI inflation on the horizon?

Central banks are generally forecasting inflation to be in the range of their 2% targets for the next several years, and although, inflation expectations have risen sharply since the March 2020 low, they are still not out of line to pre-coronavirus levels.   

Below are four reasons that we expect higher inflation over the next several years.

  • Money Supplies have risen dramatically. Central bank asset purchase programs are rapidly increasing money supplies. For example, US M2 measure of money supply (includes currency in circulation, current accounts, savings deposits, small-denomination time deposits and retail money market funds) increased more than US$3.7 trillion (almost 25%) in 2020.  In the Eurozone, this measure climbed by US$2.6 trillion and in the UK by almost US$600 billion – just those three equate to US$7 trillion in additional money sloshing around. To be sure, much of this money has been put into assets, i.e. equity markets and houses. Hence, record high equity markets, and soaring house prices, despite the coronavirus-induced economic downturn. This asset price inflation will be followed by general price inflation. 
  • Commodity prices are rising again. Rising commodity prices feed into higher inflation, especially key industrial commodities such as copper (+35% over the last year) and natural gas (+41%). Key construction commodity prices, such as lumber prices (+103%) have skyrocketed. Commodity food prices have also increased dramatically, wheat prices (+15%), and corn prices (+31%) for example. Although, some of this increase is transitory, part is due to ongoing supply constraints.
  • Reduced Globalization as ‘Made at Home’ policies are proliferating. Cheaper foreign goods are being substituted with more expensive domestic goods. Many government procurement agencies have been instructed to use resources and products produced in their own countries and some governments are offering incentives for increased purchases of domestic goods and services by businesses. These ‘Made at Home’ policies are pro-domestic labor but are generally more expensive. Although, the Biden administration will go about his trade policy in a much more politically correct way, the Administration will still promote Made in America policies and fair-trade practices for its trading partners.  

  • Pent up demand. Price pressures will build in specific sectors of the economy after restrictions are lifted. A survey conducted by the New York Fed in October states that 36% of households surveyed saved their stimulus cheques and 45% said that they would save the second stimulus cheque. The US personal savings rate, although down from its massive peak in April, shows that households still had more than US$1 trillion in personal savings in November (latest date data is available) than at the beginning of 2020. This additional savings is on top of the US$1.2 trillion in reduced credit card debt. Oh, and don’t forget the increase in asset prices also increases household spending ability. There is also pent-up demand from businesses, both in re-opening shuttered operations due to restrictions, or expanding operations once supply chains re-open.

Some have compared the re-opening of the economy to the roaring 1920s – the new age of economic prosperity and spending. Three things are needed for consumer price inflation to take hold: too much money, chasing, to few goods. Currently, the only piece missing is the chasing – and once the vaccine reaches a significant majority of the population chasing of goods and services is likely to gain momentum – and demand will outstrip supply in key sectors of the economy. Part of it, will of course be temporary, but part of it is growth of a new economy with reduced global trade and increase emphasis on made at home products. In the coming new age of spending and inflation – gold is a tried-and-true inflation hedge!

Have You Seen this Must-See Inflation Episode of GoldCore TV – Watch it Now

We leave the reader with a quote from Milton Friedman to ponder

Central bankers always try to avoid their last big mistake. So, every time there’s the threat of a contraction in the economy, they’ll over stimulate the economy, by printing too much money. The result will be a rising roller coaster of inflation, with each high and low being higher than the preceding one”

NEWS and COMMENTARY

Fed on hold as officials weigh pandemic against vaccines, fiscal support 

Dow falls 600 points, S&P 500 falls 2% from record 

GOLD PRICES (USD, GBP & EUR – AM/ PM LBMA Fix)

27-01-21 1846.40 1843.00 1344.18 1347.05 1522.54 1526.56
26-01-21 1853.20 1856.60 1356.73 1352.53 1527.22 1526.31
25-01-21 1855.60 1856.85 1356.63 1359.03 1527.16 1531.34
22-01-21 1853.60 1852.70 1357.21 1356.18 1522.36 1521.80
21-01-21 1867.65 1862.10 1361.14 1356.35 1538.57 1532.14
20-01-21 1854.60 1856.60 1354.23 1360.70 1530.42 1536.15
19-01-21 1843.10 1834.70 1353.20 1347.59 1519.82 1512.89
18-01-21 1833.95 1833.05 1354.19 1351.32 1520.71 1518.50
15-01-21 1853.85 1839.00 1357.57 1352.40 1527.20 1519.93
14-01-21 1840.25 1841.75 1347.62 1349.82 1513.05 1519.63

Buy gold coins and bars and store them in the safest vaults in Zurich, Switzerland with GoldCore.

Learn why Switzerland remains a safe-haven jurisdiction for owning precious metals. Access Our Most Popular Guide, the Essential Guide to Storing Gold in Switzerland here

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The post Gold, the Tried-and-True Inflation Hedge for What’s Coming! appeared first on GoldCore News.

Original source: https://news.goldcore.com/gold-the-tried-and-true-inflation-hedge-for-whats-coming/