The stock market has run out of upside steam, and the leading indices declined over the past months. Bonds have plunged, and many commodity prices have retreated. Investors have few options to escape falling asset prices, and the outlook remains cloudy and downright scary.
Over the past weeks, two assets have been safe harbors from market volatility. Gold has rallied from the October 6 low. The leading cryptocurrency, Bitcoin, broke out on the upside after the implosion from the November 2021 high, the bearish price action throughout 2022, and consolidation in 2023.
GLD is the leading gold ETF, and BITO is the ETF that tracks the CME’s Bitcoin futures contracts. Since early October, GLD and BITO have outperformed other assets.
Gold rises- GLD tracks gold
- December gold futures reached a $1,823.50 low on October 6.
- December COMEX gold futures put in a bullish key reversal pattern on the daily chart on October 6. After making a lower low than the prior session, gold settled above the previous session’s high.
- December gold rose 10.8% to $2,019.70 per ounce on October 27.
- At above the $2,000 level, gold was consolidating just below the recent high on October 31.
- The Gold SPDR (GLD) rose 10.7% from $168.30 on October 5 to $186.36 on October 27.
Bitcoin breaks out to the upside- BITO tracks Bitcoin
- November CME Bitcoin futures rose 40.2% from $25,410 on September 11 to $35,625 per token on October 25.
- Bitcoin futures broke out to the upside, surpassing technical resistance at the July 2023 $32,165 high.
- The ProShares Bitcoin Strategy ETF product (BITO) rose 40.3% from $12.79 on September 11 to $17.95 per share on October 25.
The case for gold
- Geopolitical turmoil tends to support higher gold prices.
- The trajectory of Fed interest rate hikes has slowed. While inflation remains elevated, the geopolitical landscape will likely cause the central bank to pause its hawkish monetary policy path over the coming months, supporting gold prices.
- BRICS countries concerned about U.S. sanctions are preparing to issue a BRICS currency with gold backing to replace the dollar for cross-border transactions. A BRICS currency that is not a fiat currency could diminish the U.S. dollar’s dominance as the world’s reserve currency.
- Since 1999, when gold reached a $252.50 per ounce bottom, every downside correction has been a buying opportunity. The bull market in gold remains firmly intact in early November 2023.
The case for Bitcoin
- Market participants are searching for assets that will provide capital growth as stocks have turned lower and bonds are in a bearish trend.
- Bitcoin and cryptocurrencies have experienced boom-and-bust price action since 2010.
- The latest price implosion ended in 2022. After consolidating throughout most of 2023, Bitcoin has broken out to the upside from a technical perspective.
- Low liquidity in Bitcoin and other cryptos means that a herd of buying or selling can take prices significantly higher or lower. In the current environment, offers to sell could evaporate, causing substantial rallies toward the November 2021 highs that were near the $70,000 per token level.
A little of both could be the optimal allocation
- Investors and traders face volatile markets that will react to economic and geopolitical events.
- The landscape remains highly uncertain in late 2023, leading to higher volatility and the potential for downdrafts in traditional stock and bond markets.
- Gold and cryptocurrencies are alternative investment tools that could attract lots of interest and buying in the current environment, pushing prices higher.
- Allocating capital to gold and Bitcoin should favor the more liquid gold market. Bitcoin’s penchant for price volatility makes a smaller percentage allocation effective. GLD and BITO are ETFs that should continue to track the underlying assets.
- The bottom line is gold and Bitcoin are assets that could be havens in the current environment, but never put all your eggs in one basket. Diversification is critical for success.
Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!