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- 📈 Why gold and bitcoin are ripping 👀
📈 Why gold and bitcoin are ripping 👀
PLUS: Breaching $30K & is China the Saudi Arabia of batteries?
Alex M.
April 11, 2023
🧙♂️
GM everyone. This is 2036, the crypto newsletter that pays you 💸
This year, we expect the Chinese, Russian, Indian, and Turkish central banks to show up to the Paris Fashion Week wearing something like this:
That’s a $230,000 shirt btw… the most expensive in history
In 2022, they more than doubled their annual gold purchases - the biggest increase since 1967.
And the numbers could be much bigger. 75% of all gold transactions were not even reported to the IMF, which keeps track of this stuff.
This is a much bigger deal than most people think.
So what’s going on?
And are they also buying digital gold?
Let’s find out.
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Last week, two important events happened simultaneously:
1/ Gold broke out above $2,000.
2/ Bitcoin became more correlated to gold than ever - exceeding its correlation with stocks.
For a long time, buying bitcoin was like buying a tech stock on steroids.
Where the NASDAQ went, bitcoin went 5X.
But that’s now changing in a big way.
Investors are starting to see bitcoin like they see gold - as a hedge against uncertainty.
And earlier this year, the World Gold Council announced that Central Banks had bought more gold in 2022 than any other year in history - with the biggest yearly % increase in 55 years:
The biggest SELLERS of gold were the Europeans - the Swiss, the French, and the Dutch.
The biggest BUYERS of gold were Russia, China, India and Turkey.
But these numbers are incomplete because 75% of all gold purchases were not reported to the IMF in the first place.
We don’t know who the unreported buyers are, but we can guess they include China, Russia and the Middle East.
We do know, however, why they’re buying gold in the first place.
Here’s the explanation from the IMF, in their own words:
First, gold is seen as a safe haven and desirable reserve asset in periods of high economic, financial, and geopolitical uncertainty…
Second, gold is perceived as a safe and desirable reserve asset when countries are subject to financial sanctions and when financial investments are potentially subject to asset freezes and seizure.
Sounds… timely?
Hundreds of American banks are insolvent. Trillions of dollars could be printed to save them.
At the same time, China has convinced its trading partners to ditch the dollar in favor of the Yuan - including France. Russia is at war.
On top of that, foreign governments are net sellers of US treasuries for the first time in years.
No wonder US treasuries - the “safest asset in the world” are down MINUS 32% since March 2020.
In the same time period, bitcoin is up 520%.
bitcoin is the blue line; stocks are orange, gold is blue and bonds are yellow
With all that buying - why hasn’t gold gone through the roof yet?
Because gold ETF investors have been net sellers.
These people typically see gold as an asset with no yield. And now that risk-free interest rates have risen in the US, they’ve sold gold to get yield from their bonds.
But the same can’t be said about bitcoin. It’s up over 75% since the beginning of the year.
Just yesterday, it breached the symbolic $30,000 level.
So we know that:
central banks are buying more gold than ever
bitcoin is more correlated to gold than ever before
Does that mean central banks are buying bitcoin?
Frankly, we can’t be sure. But someone’s buying.
It would make sense for the central bank of a country like India to buy bitcoin - just in case.
And with:
the price of gold just 2% below its all-time high
the price of bitcoin 60% below its all-time high
… one looks like a much better deal than the other.
We’re not holding our breath for it, but we wouldn’t be totally surprised to see central banks showing up to the fashion show like this instead:
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