But Eric is bullish on gold for another reason – one that we profile regularly here in the Digest…
The increasingly toxic condition of our national debt and fiscal deficit.
One angle on this is the relationship between foreign buyers of our debt and gold.
Back to Eric:
Keep this in mind: Every dollar spent buying gold is a dollar not spent buying some other asset, like a U.S. Treasury bond, for example.
China provides a fascinating and timely case study.
For most of the last decade, the large Asian nation has been the largest foreign creditor to the United States. However, China’s appetite for U.S. Treasury securities has been waning steadily for years. Today, it holds 40% fewer Treasurys than it did in 2014 and has slipped behind Japan to become our second-largest foreign creditor.
Meanwhile, China has been ramping up its gold purchases. Based on official figures from the People’s Bank of China (PBoC) – which may not be entirely accurate – the country has boosted its gold reserves by 337% during the last 10 years, from $40 billion to $175 billion.
To be sure, the Chinese do not lack for reasons to tiptoe away from the U.S. Treasury market. Our government’s balance sheet is looking a little woozy. America’s annual interest expense is double what it was three years ago and now tops $1 trillion.
To Eric’s point, I’ll add that one week ago today, Federal Reserve Chair Powell spoke in Amsterdam, saying:
We’re running big structural deficits, and we’re going to have to deal with this sooner or later, and sooner is a lot more attractive than later.
This echoes Powell’s comments from his interview on 60 Minutes back in February:
The U.S. federal government is on an unsustainable fiscal path…
It's probably time, or past time, to get back to an adult conversation among elected officials about getting the federal government back on a sustainable fiscal path.
Call us skeptical, but we don’t see any significant change coming. History suggests that our politicians prefer reelection to prudent policy, and our broad electorate prefer free stuff to not having free stuff.
It all underscores the same investment takeaway…
Stay long gold.
Finally, what’s the latest with “digital” gold?
In late-April, Bitcoin went through its fourth halving.
As we detailed in the Digest, history shows that the prior three halvings were very bullish for Bitcoin’s price for months on either side of the event. But right around the event itself, there was usually a significant price pullback.
This time has been no different. Bitcoin has been doing a lot of nothing ever since the halving.
We urged investors to prepare for this pullback/flatline period, viewing it with the broader context. On that note, here’s our crypto expert Luke Lango.
From Crypto Investor Network:
Bitcoin soared from January to April. But then, at the Fourth Halving, BTC pulled back.
This is very consistent with historical behavior around Halving events...
The good news is that, in both the second and third Boom Cycles, the selloff didn’t last long.
In each cycle, Bitcoin consolidates for a few weeks before starting to climb about two months after the Halving event.
From there, Bitcoin never looked back in either cycle — in 2021 or 2017.
Well, here we are about one month after the most recent Halving event. While that’s a little early for gains to resume by historical standards, there’s growing bullishness in the crypto market.
In fact, Bitcoin has rallied roughly 15% over the last five days, and was trading back above $70,000 earlier this morning though it’s pulled back slightly as I write around mid-day.
Better still, Luke believes we’ve hit an inflation point:
[Last week] will go down as the “turning point” for the crypto market—the week when Bitcoin begins its upward ascent to $100,000 and when altcoins start to surge like it is 2021 all over again…
Long story short, the macros are improving. Strengthening macros could be a primary driver of positive crypto price action in the coming months.
The technicals on Bitcoin confirm this positive outlook. They are very strong at the current moment.
In his update, Luke walked through a technical analysis of Bitcoin, highlighting its RSI, MACD, and price action relative to its moving averages. He concludes:
This is a uniquely bullish combination of technical dynamics…
A similar combination of bullish technical dynamics is present in January 2023, March 2023, October 2023, and February 2024. Each time, Bitcoin soars over the next few months (and sometimes longer).
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One caveat about timing and what might be a red flag
Given Bitcoin’s tendency to flatline for roughly two months after a Halving event, Luke urges investors to continue to be patient if this latest rally fizzles out. But he does note that if we don’t see Bitcoin’s gains begin to pick up steam by mid-summer, that’s when we’ll want to pay attention:
Judging by historical precedents, cryptos should not start really surging until the middle of June. We therefore think patience is required here.
However, if mid-July rolls around and cryptos are still stuck, then the dynamic of investor “boredom” would come into play.
Until then, we think most investors are – and should be – happy to wait out this volatility.
For more of Luke’s analysis of the crypto market in Crypto Investor Network, click here.
We’ll keep you updated on all these stories here in the Digest.
And once again, to join Eric tonight at 7 PM Eastern, click here for immediate registration.
Have a good evening,
Jeff Remsburg
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