LAWRIE WILLIAMS: Gold steadying the investment ship as equities and bitcoin crash

If I was an equities investor I’d be nervous about my holdings.  A number of analysts and commentators have been saying equities are overbought and due for a crash.  Some of the same people have also suggested bitcoin was in a bubble - and that has dived more than 50% already, opening this morning at below $8,000 after reaching almost $20,000 around a month ago.  Will equities follow suit with a mega crash too?

Is the answer gold?  The gold price has come back too, but only by a relatively small amount after stronger U.S. employment figures helped arrest the decline in the US Dollar.  The price was picking up again this morning while European equities remained in decline having followed their Asian and Australian ones on a downwards path.  Gold stocks have come down in price too in line with the general equities market, but we suspect may make something of a recovery even if the general equities market continues its fall.

The answer is certainly not silver at the moment, where the price has been brought down sharply – more so than gold.  The Gold:Silver Ratio is, at the time of writing, sitting at over 79, although we reckon a level of around 70 might be more appropriate which could presage a silver price spurt, but we have also learnt not to bet against a declining market.  An easily manipulated small market like silver is particularly difficult to call given the huge physical positions held by some major banks!

Bitcoin is very definitely showing the signs of a burst bubble, but whether the long predicted equities bubble is in the process of bursting too is probably too soon to tell.  There will be plenty of pundits calling the recent equities setback a buying opportunity, but we would advise investors in the markets to take at least some profits while they can in case stocks take their cue from bitcoin and crash by double digit percentages.

If equities do crash, precious metals could be brought down too as institutions and funds struggle for liquidity and need to sell good assets alongside weaker ones.  We saw this happen in the 2008 market crash, but the lesson from that perhaps is that strong assets like gold recovered quickest – and surged to new heights.

05 Feb 2018

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).