Crypto signals for precious metals market

What would happen if Bitcoin just reached its peak? If anything, how does this affect the gold prices going forward?

Several years ago, many people were interested in buying gold, but did not want to pay to keep it at home, or for insurance and safekeeping. All sorts of electronic gold, electronic bullion, and pooled account types were used to fill the demand gap.

The idea of precious metals might sound strange to someone who is new to the market. But writing about this makes me think of the scene in the Lord of the Rings film.

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Yes, I did attend the e-gold boom. It is unclear whether there was actually physical gold to back up the e-gold account (and that it wasn’t just futures contracts used as hedges).

Analysts were uncompromising in their claim that “paper gold”, if you don’t hold it, is not real and will provide no protection in the event of financial crisis. Others said as long as the bars you possess have serial numbers, they are likely real and provide protection.

Then came the ETFs – GLD was launched in 2004, and SLV was launched in 2006 (triggering a local collapse of silver prices, puzzling many who were not aware of the buy-the-rumor-sell-the-fact type of reaction on the market).

This debate continues about the physical backing of these coins. The more “evidence” (or proof) you provide, the greater backlash it generates on the other side. The more evidence (evidence) one side provides (believers/those who do not believe in the existence of those metals), the greater the backlash generated by the opposing side.

Some ETFs allow in-kind redemptions of metals, so you could go and get the bars. This would imply that the physical bars are required to be present, making it the perfect solution for investors who want to strike a balance between convenience and security.

Just when you thought that things were stable in terms of fiat currencies and other means to own them, the situation has changed.

The crypto-currencies have completely transformed the world.

Initially, bitcoin was the only cryptocurrency, but soon other currencies joined.

Sincerity be told, I heard about this product many years ago, and I dismissed it as uninteresting. Just in case, I didn’t buy any despite my gut feeling. It’s important to have a good hunch and also know about things before anyone else (and believe that intuition).

The market, and the investors who create it can be so deluded that they take much longer than necessary to reach “clear” periods.

Do you remember the early days of the pandemic? It was easy to overlook the early stages of this pandemic, even with hindsight.

The Rise of Cryptos and Precious Metals

Cryptos were the coolest kid on the block when they arrived. Finally, the future has arrived. It is a true alternative to fiat currency such as the dollar, yen and euro. It had a “futuristic vibe” to it.

Like gold and mining stock, but with a cooler price, plus more potential.

It seemed.

Over time, the precious metals and crypto markets have become more similar. Investors’ perception, not fundamentally.

Bitcoin is the most expensive metal per unit, just as (and gold’s price).

Ethereum was the smart contracts counterpart to silver that is still more affordable in nominal terms.

There were also many altcoins that offered quick wealth – like junior mining shares. Some altcoins offered massive profits, much like junior miners who found rich deposits. Some altcoins have ruined all the capital invested, much like junior miners who filed for bankruptcy.

Initially, their prices moved in different directions. The USD Index movement was a factor in their reaction, but they did it differently. Over time, these differences began to disappear.

Technicals: Gold, silver, miners and bitcoin

It seems like the markets for precious metals and cryptocurrencies are very synchronized today.

For more information, please see the chart below.

The lower half is comprised of gold (orange), Silver (well, it’s silver), as well as the HUI Index, a proxy for gold stock (brown).

It was early in 2022 that bitcoins and PMs behaved differently. Then, the gold, silver and mining stock prices moved up in an obvious manner while Bitcoin moved very modestly higher.

Bitcoin’s past performance is not surprising – the currency was in the midst of a double top and didn’t possess enough strength to continue its rally.

Since then, the markets for precious metals as well as cryptocurrencies have moved together in an almost synchronized fashion.

After the peak of early 2022, all three fell at once.

Bitcoin peaked above $60k. (Actually, when bitcoin traded close to $50,000 I said that the peak was in sight or near) It then declined to $15,000 It was at that point I said it had bottomed – which is what happened. From those lows, it started to rise.

Do you recall how bullish everybody was back then? Once again, it was interesting to see that excessively bearishness can actually be bullish and vice-versa. Everyone and their brother was in ” Todamoon! mode” when bitcoin reached $50k.

The precious metals markets also experienced a decline and correction in bitcoin’s price. The price movements of gold, silver and mining stocks were most similar to those in bitcoin.

Warning to Investors

Here’s the answer to your unasked question.

What is the purpose of today’s precious metals industry analysis?

It was important that I build the link for technical purposes between these two markets. The fact that both markets moved at the same time is not a coincidence. It makes sense from a fundamental perspective.

This means, indicators coming from the Bitcoin market will likely translate into the outlook of the precious metals markets as well, and in particular, into the outlook of mining stocks.

What is the Bitcoin chart telling us right now?

This is saying that your rebound has probably been completed and you’re about to slip.

You’ll see that Bitcoin moved up to the dashed lines and then back down. The line represents the 2021 weekly closing price low. Bitcoin has recently moved over the 2021 intraday lows, but not in terms of weekly closing prices.

The breakdown of the levels below these levels has just been verified. Weekly closes tend to be more significant than intraday extremes.

The top of bitcoin has most likely arrived. The price has doubled in nominal terms since its low. The markets (not only precious metals or stocks but other markets like forex, crude oils, Copper, and other commodities) like round numbers. This applies both to levels of price and performance. Speaking of round numbers: The recent $30k price level for bitcoin is also a round number.

This makes sense from a fundamental perspective. Central Bank Digital Currency , also known as CBDCs or central bank digital currency. Government cryptos have started to really take shape. If governments or monetary authorities decide to enforce the use of their cryptos it is easy to ban other cryptos such as bitcoin. The risk of this happening is increasing, and the popularity of cryptos will likely decrease.

That’s what I saw as the main problem with bitcoin. The Powers That Be will not give up their money power so easily when it grows to the point that it threatens monetary stability. The Powers That Be fought wars for this… moving towards CBDCs indicates that the power brokers have accepted that things will change but still wish to maintain control (or increase their own).

As bitcoin falls again, precious metals will likely fall as well. Mining stocks, however, are most likely to be affected.

The bottom chart shows that the performance of gold stocks was weaker than gold in recent times. This will be amplified if bitcoin falls. The people who can take advantage of these moves will be extremely well rewarded.

Many will be surprised by the sudden “unlikely slide” of precious metals, mining stocks and other commodities. Warning: You’ve been warned.

Przemyslaw K. Radomski, CFA

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