Tuesday, March 5, 2024

gold drivers vs BTC drivers; the China sessions

We may have all come on different ships, but we're in the same boat now. – Martin Luther King, Jr. ||

Hello everyone!! Well, well, well, we’re almost there… of course I’m talking about BTC and the all-time high.

Programming note change: I know I said yesterday that I’d have to skip tomorrow’s newsletter – BUT I think I can publish something after all. It may end up being short and without audio, depending on where I end up sending from. But this is not a week to skip a day if it can be avoided!

IN THIS NEWSLETTER:

• Gold drivers vs BTC drivers

• Reading the tea leaves: China’s Congress

If you’re not a subscriber to the premium daily, I hope you’ll consider becoming one! You’ll get ~daily insight into the growing overlap between the crypto and macro landscapes, as well as some useful links, and access to an audio read of the content.

WHAT I’M WATCHING:

Gold drivers vs BTC drivers

After an astonishing day yesterday, BTC appears to be taking a breather after briefly touching $68,850. As I type, it has pulled back to around $67,200, which is still quite something.

 (chart via TradingView)

Gold, on the other hand, continues to climb, and is now consistently trading at or close to all-time closing highs, reaching $2,127/oz earlier today.

(chart via TradingView)

Comparing gold’s performance to that of BTC is still like comparing a bicycle to a bullet train, however. Year-to-date, gold is up just over 3% while BTC clocks in with an eye-watering 58%. A more interesting takeaway is that this run-up in both is with the US fed funds rate still over 5%, and with rate cut expectations being pushed further and further back.  

What’s more, and this is notable, gold’s run-up is happening against a backdrop of ETF outflows, while BTC’s is largely propelled by ETF inflows.

(chart via Bloomberg)

So, if it’s not flows driving the gold price, and it’s not rate cuts, what is it? There are signs it is buying from central banks and other entities looking for stores of value outside the US. Earlier today, the World Gold Council reported that central banks increased official gold reserves by 39 tonnes in January, more than double the net increase seen in December. The central bank of Turkey was the largest buyer, followed by those of China, India and Kazakhstan.

(chart via the World Gold Council)

Perhaps even more relevant for the bitcoin outlook is the result of a World Gold Council survey conducted in the first half of 2023 that asked central banks why they are buying gold. The answers overwhelmingly skewed toward “safety”, with the metal’s “historical position”, “performance during times of crisis”, and “no default risk” deemed the most relevant factors.