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LAWRIE WILLIAMS: World Gold Council issues warning on bitcoin as safe haven

In what might seem as an unnecessary warning to anyone who has followed the progress of the bitcoin price over the past year, the World Gold Council (WGC) has put out a commentary rubbishing bitcoin as a potential investment safe haven with the advice that gold is a far better option.  This does echo our own views which have often been expressed here.

Take the 2018 full calendar year as an example.  True the gold price fell about 4% over the period, but equities fell by more, even though they did outperform gold for part of the year, as we pointed out strrongly in an article published here a few weeks ago:.  The equties decline was true of U.S. stocks on a full year basis, and even more true on equities in most other countries and denominations.  But the falls in equities and in gold were dwarfed by the enormous falls in cryptocurrencies over the same 12 month period.  The most heavily traded, theoriginal bitcoin (BTC), fell from around $15,000 on January 1st 2018 to around $3,400 today - a massive fall of 77%, and the decline may not be done yet.  Those who may have invested in smaller, and cheaper, cryptos like Ethereum (ETH) will have done even worse! It started the year at above $1,000 and peaked a few days later at near $1,400.  It is currently languishing at around $105 - a fall of almost 90% from January 1, 2018, and even more from its peak.  That certainly isn’t safe haven behaviour!  We suspect that ETH will decline to under $100 before long - and maybe even to near zero as may other smaller value cryptocurrency options.

As the WGC put it in what is in our view a very restrained report: Though comparisons have been made, we believe there are several reasons why cryptocurrencies are no substitute for gold. Specifically, gold is less volatile and enjoys a more liquid and established market. It has a well understood role in an investment portfolio and minimal overlap with cryptocurrencies on many sources of demand and supply. As events of late 2018 indicated, the perceived ability of cryptocurrencies to serve as a liquid, safe-haven hedge and store of value in times of market stress, did not hold. Bitcoin’s price behaviour resembled a technology stock as it fell 55% during the quarter [Q4 2018], while the Nasdaq fell 19%

In our view bitcoin is a hugely speculative investment, whereas gold - even with the ups and downs in the metal price - is enormously less volatile and remains a far better protector of one’s wealth in times of market stress and even when stock markets are holding their own.  One of the reasons seen for gold’s relatively lacklustre performance of recent months had been the seemingly never-ending growth in equities, but this equities growth looks to have ended in the middle of 2018 and they have been much more volatile of late with a big downturn in Q4 2018.  Many observers are seeing a major equities crash ahead which  is perhaps another reason to hold gold in one’s portfolio.  Crisis insurance!

Of course today’s the day that Jim Rickards has suggested that the world’s central banks will get together and revalue gold to $10,000 an ounce!  We remain exceedingly sceptical about this claim but if we are proved wrong an existing gold investment will have been the bargain of the decade. Such wishful thinking on Jim’s part seems to be an integral part of his Agora Financial persona.  It’s a shame that someone with an investment following like Rickards is reduced to such predictions to drag in investment punters.  For the record we do think that the gold price will increase this year, and also that it may eventually reach $10,000 an ounce, but not for many years to come.  Treat gold as a wealth protector as the WGC suggests, not as a quick route to riches.

29 Jan 2019 | Categories: Gold, Bitcoin

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