Topic: Lower gold price=Higher for BTC? (Read 637 times)
Bitcoin is not 'stable' like gold, lol.
I never thought of the concept that maybe potential Gold investors could be looking at BTC.
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(Note: This article assume some knowledge of the Cyprus Crisis, for more on that issue see my recent article here.)
By now everyone has heard about Cyprus, Italy, and the EU's continuing battle to hold itself together (which frankly reminds me a lot of Sisyphus and his perpetual struggle to roll a boulder up a hill, but that's another story). However, one surprising result of the increased attention to the EU has been the relatively muted response in gold (GLD) and gold miners like Goldcorp (GG), Newmont Mining (NEM), Barrick Gold (ABX), Yamana Gold (AUY), Kingross Gold (KGC), and a herd of other smaller miners.
Historically, gold and to a lesser extent silver and the gold miners have displayed a strong negative correlation with the rest of the market. On some of the worst days in 2008, virtually the only S&P 500 companies in the green were the gold miners. This negative correlation between gold/gold miners and the rest of the market was extremely valuable for investors because it enabled them to easily hedge their portfolio without having to take on short positions. The correlation coefficient between the gold miners and the broader stock market over the last 5 years is -0.68. (See my blog for a further discussion of correlation coefficients over time and using correlations in market hedging). Essentially this just reinforces the casual observation that when the markets are down, gold and the miners are up. OK, so chaos is good for safe haven assets like gold, so what's the problem?
I think there is something else happening to the price of gold; something that isn't yet widely discussed, and which affects the value of gold as an investment asset. Recently, a CNBC reporter was discussing gold and espoused the view that gold is no longer a safe haven asset. Instead, the reporter's view was that gold has become securitized and now deserves to be treated like a common ETF asset rather than a separate store of value. But if this is the case, what are people using as a safe haven asset instead? Well, I'll get to that in a minute, but first let's talk about the recent performance of gold and the miners
By now everyone has heard about Cyprus, Italy, and the EU's continuing battle to hold itself together (which frankly reminds me a lot of Sisyphus and his perpetual struggle to roll a boulder up a hill, but that's another story). However, one surprising result of the increased attention to the EU has been the relatively muted response in gold (GLD) and gold miners like Goldcorp (GG), Newmont Mining (NEM), Barrick Gold (ABX), Yamana Gold (AUY), Kingross Gold (KGC), and a herd of other smaller miners.
Historically, gold and to a lesser extent silver and the gold miners have displayed a strong negative correlation with the rest of the market. On some of the worst days in 2008, virtually the only S&P 500 companies in the green were the gold miners. This negative correlation between gold/gold miners and the rest of the market was extremely valuable for investors because it enabled them to easily hedge their portfolio without having to take on short positions. The correlation coefficient between the gold miners and the broader stock market over the last 5 years is -0.68. (See my blog for a further discussion of correlation coefficients over time and using correlations in market hedging). Essentially this just reinforces the casual observation that when the markets are down, gold and the miners are up. OK, so chaos is good for safe haven assets like gold, so what's the problem?
I think there is something else happening to the price of gold; something that isn't yet widely discussed, and which affects the value of gold as an investment asset. Recently, a CNBC reporter was discussing gold and espoused the view that gold is no longer a safe haven asset. Instead, the reporter's view was that gold has become securitized and now deserves to be treated like a common ETF asset rather than a separate store of value. But if this is the case, what are people using as a safe haven asset instead? Well, I'll get to that in a minute, but first let's talk about the recent performance of gold and the miners
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