Wednesday, April 3, 2024

gold and BTC, a defense of Goldman Sachs' CIO's crypto comments

“Men are disturbed not by things, but the view they take of them.”  –  Epictetus  ||

Hi all! I hope you’re all doing ok, and enjoying good weather wherever you are! A really long email today, but I’ll make it up with shorter ones later this week.

IN THIS NEWSLETTER:

• Gold and BTC – the narrative relationship

• Defending Goldman Sachs’ CIO’s crypto comments

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 (usually!) access to an audio read of the content. And there’s a free trial!

WHAT I’M WATCHING:

Gold and BTC – the narrative relationship

After a few years of lurking in the wings, waiting for its cue to come on stage (and missing quite a few of them), gold is finally sneaking into the spotlight.

With a 1-month performance of 9.7% (vs 2.1% for the S&P 500, 4.6% for BTC), you could counter with the observation that it is stomping into the spotlight, but no, I’m going to stick with sneaking because I think its role has some way to play out yet.

(chart via TradingView)

First, we should look at what kind of role we’re talking about here. For millennia, gold has been regarded as a robust and reliable “store of value” that can protect wealth in times of uncertainty and inflation.

Yet it is pretty clear that over the past few years, that role has not played out. Reported inflation rates are well down from a year ago (even if they seem to be a bit stuck now).

(chart via TradingView)

“Ah, but reported inflation is backward looking,” I hear you exclaim. “Gold responds to expected inflation!”. Nope, doesn’t look like that, either, going by the relationship between the gold price and the 5-year breakeven inflation rate implied in the pricing of inflation-indexed bonds.

(chart via TradingView)

Of course, TIPS yields just reflect the market’s consensus view on US inflation, which is obviously not replicated around the world. Here is where it starts to get really interesting, highlighting not only divergent inflation expectations but also non-economic reasons for buying gold.