The gold market is thus far not showing much reaction to the Fed symposium taking place in Wyoming this week. More than one Fed official has, thus far, suggested that the time to begin tapering stimulus may be closer than anticipated. The markets may show little, if any, reaction however before the streaming commentary of Fed Chief Jerome Powell set for release tomorrow.
The gold market is certainly not lacking for reasons to move higher. Ultra-low interest rates, quantitative easing, massive sovereign debt and geopolitical risks are all bullish for gold. With so much seemingly working in its favor, one then has to ask the question of why gold is not higher in price.
It has been suggested by Wells Fargo and others that the gold market is not lacking fundamentals to move higher, but that it is a victim of competition. That competition is primarily, if not totally, Bitcoin.
Bitcoin has seen a tremendous rise this year, hitting nearly $60,000 per unit before pulling back in recent months. The ascent by the digital currency has some analysts suggesting that it could hit $250,000 in the coming years. LIke gold, Bitcoin has a variety of fundamental reasons it could scale to such heights. These include rising inflation, dollar weakness, geopolitical uncertainty and more.
Unlike gold, however, the Bitcoin and crypto markets have not yet stood the test of time. Gold has been considered a reliable store of wealth and protector of value for centuries whereas Bitcoin and other cryptos were just created in recent years. Unlike gold, Bitcoin cannot be held in your hand or touched, felt, seen or smelled. It is not a physical asset, yet acts like a physical asset. Perhaps the single biggest factor in Bitcoin’s attraction is its potential for rapid price increases. Investors want to have the best of both worlds: To own an asset that may hedge against a weaker dollar and inflation while also owning an asset that may produce rapid and significant profits. The argument has been made by some that Bitcoin has already become such an asset class and that increasing demand for its limited supply is likely to fuel a massive price rise in the years ahead.
Gold, on the other hand, has a tendency to take its time when moving up or down. The market is not nearly as “exciting” as Bitcoin and therefore is likely lacking in investors currently. Many of those would-be investors are probably into or looking at Bitcoin right now, overtaken by the power of greed and wishing to buy low and sell really high. Those wishes may, however, cause them to forget the real reasons that Bitcoin may be worth owning.
Unlike gold, Bitcoin has a variety of issues that could come up that could cause a significant loss of faith in it as an asset
class. A massive technical failure, for example, could fuel a decline in desire for the coin that could make it quickly obsolete. Gold is unlikely to see such a scenario, however, and may retain its value no matter what happens.
Competition can be a healthy and good thing. Eventually, however, competitions produce a winner and a loser. We suspect that gold, as it has done for hundreds of years, will eventually find its place at the top of the investment food chain. When it does, prices could not only challenge previous all-time highs over $2000 per ounce but could extend far beyond those levels.