01/26 Links: Finally Time to Invest in Gold

With cryptocurrencies now firmly in bear market territory, is it time to invest in gold?

After years of dormancy, gold is starting to look interesting again. Take a look at the long-term chart:

Traditionally, precious metals like gold and silver have protected investors’ wealth against inflation. And today — more than any time in recent memory — investors need that protection.

But even with inflation surging, gold prices have been rangebound. Instead of investing in gold to protect against this new wave of inflation, investors have turned to “digital gold” — or cryptocurrencies like Bitcoin.

The idea was that much like gold, Bitcoin is a scarcity play. Since there will only ever be 21 million Bitcoin tokens mined, and many existing tokens are lost forever, this particular asset has very limited supply.

Sure, the scarcity argument makes sense. But Bitcoin and other cryptocurrencies don’t have nearly as much history of preserving wealth. Meanwhile, gold has been a precious asset for thousands of years.

Thanks to a vicious bear market for cryptocurrencies, investors are now re-thinking the shift away from gold. And with gold on the verge of breaking out of a long-term consolidation, there’s a good argument to be made for us to once again invest in gold.

I’m starting to build some positions in gold, gold miners, and other gold-related investments. At the very least, gold gives investors a good opportunity to diversify away from what has become a much more turbulent stock market. And as the world deals with rising (and persistent) inflation, gold may once again be a perfect hedge.

Just some thoughts on protecting your wealth from inflation on this important Fed Day.

Now, let’s shift gears and take a look at some of the most important reads for investors today.

So Long Crypto, Buyers Invest in Gold

• Bloomberg: World’s top gold ETF sees holdings surge.
  • SPDR Gold Shares (GLD) recorded its biggest net inflow since listing in 2004.
  • Investors are preparing for Fed meeting and long-term inflation.
  • Concerns of Geopolitical risks and the plunge in Bitcoin cause many to invest in gold.

• Glassnode: Sizing up a Bitcoin bear.
  • Bitcoin has fallen 49.9% from its November all-time high.
  • Over $2.5 billion in net realized losses have been recorded.
  • The question is if this is a true capitulation or part of a broader bear move.

• CoinShares: Digital assets saw inflows last week.
  • Investors committed an additional $14.4m to digital assets last week.
  • Inflows came late in the week — investors see a buying opportunity.
  • Ethereum is seeing outflows while Bitcoin is seeing inflows.

• Bloomberg: How Ethereum’s big change will work.
  • Ethereum is canceling the role of “miners” who track and validate transactions.
  • “Proof of stake” computing power will use less energy and be faster.
  • Bitcoin is now reliant on huge centralized mining farms – not decentralized.

• Bloomberg: Coinbase closes at record low, revenue warning.
  • Mizuho Securities warned that COIN could miss revenue in Q1.
  • Shares of Coinbase are down nearly 50% from November peak.
  • Coinbase generates the majority of revenue from trading fees.

• Bloomberg: DeFi shakeout seen as liquidations lead to exodus.
  • Aside from Bitcoin, many other tokens have been hit harder.
  • Liquidations, developer departures and user exodus adds pressure.
  • If the crypto bear market lasts a year, 80% of apps could go away.
  • Analysts question if this leads investors to invest in gold.

A Quick Correction… Now What?

• FT: Global stock markets record worst week in more than a year.
  • The tech stock selloff spilled into other sectors.
  • In the U.S., the Federal Reserve is tightening financial conditions.
  • The FTSE All-Wold index fell 4.2% last week – worst since Oct 2020.

• Bloomberg: Pandemic darlings getting crushed.
  • Marquee companies lie AAPL & MSFT will report earnings this week.
  • More than $1.7 trillion in market cap is gone from Nasdaq 100 index.
  • Netflix cratered more than 20% Friday.

• Bloomberg: Short bets against ARKK stocks suggest more pain ahead.
  • Short interest on three largest Ark funds near record high.
  • The rise in interest rates has led to sharp declines for richly-valued stocks.
  • Ark funds may, however, be ripe for short squeezes.

• Bloomberg: Retail traders bailed on market right before rebound.
  • Retail investors offloaded a net $1.36 billion worth of stock by noon.
  • Evidence that retail investors are capitulating could lead to larger rally.
  • Fund managers have yet to actively unwind positions.

• Bloomberg: S&P 500 tumbles in worst ever start through 16 days.
  • The S&P 500 has dropped 11 percent so far this year.
  • Traders are bracing for the Federal Reserve to tighten policy.
  • As treasury bond yields rise, more volatility is expected.

China, Russia Add to World Tensions

• FT: Russia plans to target Ukraine in “lightning war”.
  • NATO has put its members on standby in case of an attack.
  • Russia has deployed more than 106,000 troops to the Ukraine border.
  • Belarus is deploying army resources to defend its southern border.

• Reuters: US orders departure of Ukraine embassy staff family members.
  • US diplomat family members must leave, due to threat of military action.
  • The U.S. Embassy warned military action could come at any time.
  • Pentagon will have “options ready to reassure our allies.”

• Reuters: China reluctantly gives property market a break.
  • China will let property developers access funds from escrowed prepayments.
  • The property sector contributes to up to 1/3 of domestic output.
  • This move could free up as much as $570 billion to complete projects.

• Bloomberg: China property M&A deals pick up.
  • Property firms have announced sales to state owned enterprises to raise cash.
  • Asset sales are a key step to easing the liquidity crisis.
  • Deals have helped to spur optimism for bond and stock investors.

• WSJ: How bad are things in China’s property market?
  • The value of new development contracts dropped sharply to end 2021.
  • Defaults on dollar-denominated bonds have ballooned.
  • Volatility has spread with large swings for developer bond prices.

Business, Bonds and the Fed

• WSJ: Mattel wins Disney toy deal – joining Elsa with Barbie.
  • Mattel has won the license for toys from Disney’s princess lineup.
  • The toy company will start selling Disney items in 2023.
  • Hasbro lost the princess rights but has the Star Wars license.

• WSJ: Rising interest rates hit municipal bond market.
  • The S&P Municipal Bond Index is down 1.1% through Jan 20.
  • Rising interest rates make outstanding bonds less attractive.
  • Analysts don’t expect muni-bond fund inflows to continue at same pace.

• CNBC: Boeing takes $3.5 billion charge, but generates positive cashflow.
  • Boeing reported a loss of $7.69 per share on $14.79 billion in sales.
  • Production of the 787 Dreamliner has been further delayed.
  • General Electric forecasted a 20% increase in its aviation unit.

• WSJ: Fed expected to signal rate increases to start in March.
  • The Fed is expected to start raising rates in March, ending bond purchases.
  • Watch for the Fed to say it has met both inflation and employment goals.
  • Policy statement will be released at 2:00, news conference starts at 2:30 EST.

• WSJ: Chip shortage leaves US dangerously low on semiconductors.
  • Manufacturers are down to less than 5 days of inventory for key chips.
  • Before the pandemic, companies maintained 40 days of inventory.
  • With low inventories, a single disruption could cause big ripple effects.