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LAWRIE WILLIAMS: Gold and silver edge up as bitcoin tanks

Bitcoin has demonstrated over the past couple of days why it’s not exactly an ideal investment for widows and orphans.  Those who climbed onboard bitcoin as it seemingly unstoppably moved to breach the $20,000 level have seen it tank by almost 40% in a couple of trading days and was possibly heading to a 50% fall.  Whether this is just a correction on its way back up to $20,000 and above, or the beginnings of a bursting bubble, remains to be seen, but it does emphasise the enormous volatility of an ‘asset’ which is being driven up purely on sentiment, and would appear to have little or no material substance.  It has all the similarities to a Ponzi scheme where there have to be new buyers in the market to drive the price to ever new highs.  But when the new buyers desert it the asset plunges as holders try to bailout at whatever price they can.  Of course that applies also to many other asset classes nowadays – even the equities markets which are being driven up to, in our view, unsustainable levels.  Bitcoin is perhaps an extreme example and if the crash is sustained, equities could well follow bitcoin’s example and end the bull market..

What does seem to be happening at the moment is a section of the bitcoin community taking huge profits given the growth of the cryptocurrency this year – or indeed in the last couple of months.  As I write, bitcoin itself seems to be have broken through downside resistance at the $12,000 level – still hugely profitable for those who may have bought the cryptocurrency earlier in the year.  There has been a bit of a bounce back up from around $11,000 at the time of writing, but whether this can be prolonged or is of the ‘dead cat’ variety remains to be seen.  If say, however, the bounce is not prolonged and $10,000 is breached on the downside, the so-far very heavy correction could become a rout! This is the last trading day before Christmas and recent investors in bitcoin are not seeing much Christmas cheer so far.

Meanwhile gold appears to be edging up in the other direction, and had broken up through $1,270 before the U.S. opening session, although the COMEX futures market could well bring it back a few notches going by recent experience.  At the time of writing though it had moved up a few more dollars, while silver was accompanying it on an upwards path too.  One doubts gold’s rise is on the back of bitcoin’s fall, but if the latter’s downturn proves to be prolonged it could pull some investors back into precious metals.  As noted above, silver was moving up alongside gold but with the gold:silver ratio seemingly stuck firmly between 78 and 79, silver was just about moving in parallel with its yellow sibling.

Regarding bitcoin there do seem to be rumblings on both sides of the Atlantic about possible regulation of the cryptocurrency being imposed.  If this happens, which we feel is inevitable, it will strike at the very heart of bitcoin’s raison d’etre and certainly reduce its desirability as the monetary payment medium of choice for the world’s criminal sector.  Lack of any real controls means it is a money launderers dream and that is something governments around the world are trying hard to clamp down on.

22 Dec 2017

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London – recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com

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