Tag Archives: Economy

Why Cryptocurrencies Shouldn’t Replace Gold in Your Portfolio

The cryptocurrency phenomenon continues with its mind-boggling volatility and millions of dollars gained and lost on a minute by minute basis.

Despite recent setbacks, Bitcoin and other cryptocurrencies have enjoyed significant appreciation since their initial offerings. But is this sudden rise a true indication of crypto’s value?

The Advantages Of Gold Over Bitcoin

Although with luck you may pick a “crypto winner,” I believe gold is a far more useful asset than cryptocurrency.

Here are a few reasons why:

1) A vast majority of cryptocurrencies will fail.

The current rise in cryptocurrencies can be compared to the stock market’s dot.com bubble that burst in the year 2000.

A few internet companies like Amazon and Google survived; the rest failed. It is probable the same is true of cryptocurrencies.

Assuming governments don?t eventually create their own digital currencies, only a few, if any, current crypto offerings have a chance to survive and be profitable.

2) Cryptocurrencies have a lack of security.

Security is a major issue facing the cryptocurrency industry.

There are all too frequent major hacks involving a crypto exchange. With security issues surrounding cryptocurrencies not fully resolved, their ability to compete with gold or traditional investments is limited.

3) Speculation and hype are driving the value of cryptocurrencies.

Since the beginning of 2017 cryptocurrency values have skyrocketed. But this irrational spike in crypto prices suggests this is no more than a bubble.

Most individuals buy them for the sole reason of selling them in the future at a profit. This is pure speculation, not hedging.

Cryptocurrencies vs Gold price volatility

Compared to gold, the price of cryptocurrencies is much more volatile, making them a shaky financial hedge. [Chart: Valuewalk]

It’s a dubious bet to use such a volatile form of currency as a hedge against fiat currencies or inflation.

4) Cryptocurrencies are surprisingly similar to fiat money.

The definition of fiat money is a currency that is legal tender but not backed by a tangible commodity.

This has been the case with all major currencies, including the U.S. Dollar, since the United States abandoned the gold standard in 1971.

It?s clear that cryptocurrencies partially fit the definition of fiat money. They may not be legal tender yet, but they?re also not backed by any sort of physical commodity.

Logic suggests that you can?t hedge against a fiat currency with another form of fiat currency.

5) Gold is liquid; cryptocurrencies are not.

Gold is one of the most liquid assets available. It is easily converted to cash and its value is not restricted by national borders.

The same cannot be said about cryptocurrencies. It’s ironic–as speculation in cryptocurrenices skyrockets, so have the fees to transact in them or convert out of them.

For example, according to BitInfoCharts.com, Bitcoin’s transaction fees have vacillated wildly from a low of $0.68 per transaction this time last year to $55.00 per transaction in late December.

Currently, the rate is $5.00. The fee is fixed no matter how much you spend.

Obviously, these rates are not conclusive to retail transactions. As a result, retailers who were accepting Bitcoin are now backing away from it.

Liquid, Bitcoin is not.

6) Cryptocurrencies do not have gold?s history as a store of value.

While cryptocurrencies have been around for less than a decade, gold has been a store of value for thousands of years.

Over time we’ve seen that stocks and bonds have a minimal or negative correlation with gold, particularly during recessions, making gold a sound hedge against inflation, recession and fiat currencies.

In 2017 a rising stock market went hand in hand with rising cryptocurrency prices. In recent days, sharp drops in the stock market and crypto market were nearly simultaneous.

All this suggests a lack of hedging value in the cryptocurrency market.

Cryptocurrencies Are No Substitute For Gold

The purpose of this article has not necessarily been to criticize cryptocurrencies.

We suspect that a limited number will do very well over time as the technology they represent has a bright future.

This article is simply meant to dispel the notion that cryptocurrencies can somehow replace gold in a 21st century portfolio. The simple answer is they can?t.

How Would Precious Metals Perform If President Trump Were Forced Out of Office?

Donald Trump?s policy agenda, and his very presidency, are in jeopardy?at least if you believe all the chatter from the left-leaning “mainstream” media.

For weeks now, the big media outlets have been stirring up talk of impeachment. One story after another dealing with the likes of James Comey, Jared Kushner and Vladimir Putin are behind the impeachment talk despite the lack of concrete evidence of “high crimes and misdemeanors.”

Still, Democrats in Congress smell blood in the water, and they have readied articles of impeachment for introduction as soon as an opportunity presents itself.

Impact of a Trump Impeachment on Markets

But investors don?t seem particularly concerned about the implications of intensifying political turmoil in Washington.

The traditional safe-haven of gold is up modestly on the year but has yet to see any major sort of panic buying.

president trump gold markets

Precious metals markets so far have not been affected by the possibility of a President Trump impeachment or resignation. [By Gage Skidmore from Peoria, AZ, United States of America (Donald Trump) [CC BY-SA 2.0], via Wikimedia Commons]

Perhaps investors do not believe the Trump presidency is at risk?or perhaps they don?t think it matters if Trump gets pushed out of office.

How Markets Have Been Affected By Past Presidential Scandals

Consider the recent history of presidents who have gotten themselves into trouble.

Neither the resignation of Richard Nixon nor the impeachment (and subsequent acquittal) of Bill Clinton caused a stock market crash. Precious metals markets also showed little volatility around these momentous political events.

President Nixon resigned in August of 1974 with gold trading at $152.00 an ounce. Gold began that year at $117.00 and finished at $195.00 per ounce.

Nixon?s resignation occurred within a year-long rally and does not seem to have altered its trajectory.

Closure of Gold Window Had Bigger Effect

Far more significant than Nixon?s resignation was his decision in August of 1971 to close the gold window.

From that point on the U.S. dollar would be a fiat currency with no link to gold.

richard nixon resignation economy

The resignation of President Nixon had little effect on the economy compared to his decision to close the gold window.

As a consequence, inflation fears began to build, slowly at first, but then manically by 1980 with gold prices spiking to $850.00 an ounce.

The Watergate scandal that made Nixon infamous did not really have anything to do with how precious metals performed in that era. The real Nixon legacy is what happened to the dollar after he ended its ability to be redeemed in gold, the consequences of which are still playing out.

Gold Stable During Clinton Impeachment

Contrary to popular misconceptions, Nixon was never impeached. But Bill Clinton was.

The House of Representatives initiated articles of impeachment against President Clinton in December of 1998. However, in February of 1999 the Senate voted to acquit Clinton and leave him in office.

Around that time gold prices were in a long bottoming out process after having been in a bear market since January 1980. From the time Clinton was impeached to his acquittal, gold essentially did nothing but remain stagnant in the $290.00 range.

The bottom line is that political turmoil, in this case a possible Trump impeachment or resignation, does not necessarily translate into market turmoil or even a detectable reaction.

But major policy changes can have significant short term and long term effects on precious metal markets.

2016: A ‘Safe Haven’ Year for Gold?


As global equity markets tumble, many analysts say it could be time for gold to shine once more as a safe buy in times of market turmoil.JHGS.US-gold-eagle-2012

Spot gold prices are hovering just below $1100.00 per troy ounce as I write this, reflecting a modest 1% increase since January 1st. However, that 1% increase would look extremely appealing to those holding equity based portfolios. Gold prices recently topped $1100.00 for the first time in over two months as the dollar fell in response to concerns over both the Chinese economy and weaknesses within our own economy.

There are numerous reasons that Gold could be at the very least a stable investment option this year. They include but are not limited to; extremely volatile equity markets, escalating tensions in the Middle East, and military related instability in both North Korea and Iran.gold bullion

Gold?s recent stability and strength amid broad ?risk off? sentiment could renew investor interest. Gold is currently holding above its 50-day moving average in spite of a relatively strong US dollar, helped by lower US yields and physical demand.

During times of financial uncertainty and geopolitical turmoil, investors funnel money into assets that benefit from ?risk-adverse? sentiment or act as a store of value. Whether gold can be considered a safe haven may be subject to debate. However, gold prices have recently risen despite China?s economic slowdown, escalating tensions on the Korean peninsula and the significant downturn in global equity values. With so much uncertainty, demand for gold as a tangible safe haven asset is again on the upswing.

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