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This article was originally published on ETFTrends.com.
I have been making the investment case for gold since 2005. That was the point that the first physical gold ETF was listed, and I bought some. Then I bought some more, then I bought some more, and now I have it coming out of my ears.
You could skip this note and just read Alan Greenspan’s 1966 essay Gold and Economic Freedom, but his is a little more dense and ideological.
His goes something like this: A Treasury bond is a claim, and as you issue more bonds, eventually you have more claims than assets.
That’s when inflation happens. We are there.
How We Got Here
Gold has been going up, in fits and starts, since the year 2000.
Y2K was a special time in monetary history—interest rates were high and currencies were strong. Financial conditions were tight. And the price of gold dropped below $300 an ounce and stayed there for a while.
I remember listening to the financial market report while driving my Toyota Tercel through downtown San Francisco and hearing that gold was two hundred-something an ounce. That sounds cheap, I thought.
Fast-forward two decades, and you'll see that the last six months have been unkind to gold.
What’s interesting about it is that we’ve had a boatload of positive gold catalysts—unlimited deficit spending and unlimited monetary easing, not to mention some civil unrest thrown in—yet gold has been the worst-performing commodity.
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The reason is that lots of people have been attracted to digital gold—Bitcoin.
This is impossible to measure, but it’s my belief that Bitcoin has drawn billions of assets away from gold. And in recent weeks, gold and Bitcoin have been negatively correlated. As Bitcoin has gone down, gold has gone up.
Source: Jerry Jordan on Twitter
Winners & Losers
Bitcoin has proven that it is no store of value, after being so easily manipulated by a temperamental billionaire, in an elaborate pump-and-dump scheme. Nice asset you got there.
You can’t do that to gold—it’s simply too big. Even the Reddit jerks who tried to manipulate silver sustained heavy losses. These markets are large and liquid, and it just cannot be done.
Cryptocurrencies are very young. A good analogy is the internet bubble of the late 1990s when there were thousands of (mostly unprofitable) dot-com companies. Fast-forward 20 years, and all of them are gone except for four.
If you had correctly picked those four companies, you were rewarded with unbelievable returns. But if you invested in Webvan's grocery-delivery business, for example, you got a zero.