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Gold & DeFi: A Conversation

    A friend accidentally sent me an invite to a metals and mining conference. She knows I was bullish on Gold in the mid-2000s but have been mostly…

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A friend accidentally sent me an invite to a metals and mining conference. She knows I was bullish on Gold in the mid-2000s but have been mostly skeptical since. I respect her as an investor, but she is has been bullish on gold for the decades I know her and for many decades before that. Our emails back and forth were pretty amusing, with me challenging her current premise for owning Gold, and she defending her lifelong attraction to the yellow metal as an investment vehicle.

Our conversation almost always begins the same way, with her goto line: “Look how the dollar has depreciated over the past century.”

My goto response: “Why would any portfolio have sat in dollars for a century? Don’t tell me how gold has done versus the dollar, tell me how gold has done versus WHERE MY DOLLARS ARE INVESTED: Stocks, bonds, real estate, my own business, and start-ups — all of which beat gold in any timeframe you care to choose.”

My modest caveat: “A dollar has to maintain its value from the time I get paid until whenever I invest it, spend it or pay my taxes with it.”

Thus began our back and forth emails.

We agreed Gold’s performance in 2021 disappointed: Gold has had a fantastic window to prove itself as an effective hedge in the first quarter of 2021; There was the anticipation of Covid vaccines leading to a massive re-opening surge, with big spending and temporary inflation. This was the perfect environment for gold to surge through $2,000 and begin its long-promised march towards $10,000.

That thesis looked right for all of 10 minutes.

When it failed to move higher off of every possible supportive condition, the professional Gold traders admitted their error and dumped it. But the Gold Bugs are a religious sort, who continue to believe despite the persistent disappointments of the atomic number 79.

My favorite line was her quoting Don Coxe1: “Those who know it best love least for they have been disappointed the most.” She added, “I guess I am one of these people but I will still keep buying and believing.”

My friend reminded me I had liked the ETF GLD when it was ~$400 on CNBC pre-GFC (I was laughed at by the anchors, which turns out to be a great indicator).

My response was those were very different conditions, Gold went up 5X since then, and other, more attractive opportunities had presented themselves. The marketers seem to have gotten used to QE/ZIRP, and Gold has not responded much to those inputs. Indeed, over the past decade, Gold has done a whole lot of nothing. This failure in 2021 was probably the last straw for gold for not just me, but lots of others: Libertarians, hard money zealots, even some former goldbugs had migrated to Crypto. Gold was so last century.

Then she said this, that rocked me back on my heels:

I like having assets out of the banking system + out of government hands.”

This is utterly false, a premise that is so wrong as to be hallucinatory. It is a narrow and artificial claim that is not reality-based.

Everything you own — EVERYTHING — depends upon the government to enforce your contractual property rights: The title to your home is enforced by the town property and tax registry, and if you have an issue, the government courts are where it gets resolved. You own title to your car because it is registered with your state’s DMV; that little DMV paper is how you transfer ownership to a third party. Ownership of any stock or bond you believe you own is tracked by custodians, the Depository Trust Company (DTC), and numerous other entities, all regulated by the U.S. Securities and Exchange Commission (SEC).

Ownership of any asset requires a central authority to enforce rules about that ownership. Unless you live in the badlands, where it is you, your trusty horse, and your rifle as the only law in town (Shane! Come back!). But, if you live in civilization — in any town, village, or city where people congregate — there will be some form of government hands involved in your business, and with a banking system tasking a vig as well. This is the promise of DeFi, to get these entrenched players out of your pocket. Good luck getting them to go quietly, if at all.

The pushback to this was “Not true not if you vault your gold outside the country and not in a safety deposit box.”

Again, I had to point out this was wrong:

1. Outside this country means inside another country — you are relying on the same thing from that government — but who do you trust? China? Russia? Israel? Switzerland? None are trustworthy.2

2. Worse, you are vaulting your gold, so now it has a cost of carry not accounted for in the spot price — so the performance is even worse.

I was shocked but I should not have been.

I told her the only positive thing I could say about Gold is that the moment I post on it, it will mark the beginning of a glorious and embarrassing run higher. Thus, she should thank me for her coming hard metal portfolio gains. Mark the date.

~~~

What are your thoughts on Gold? Share them here

 

 

Previously:
12 Rules of Goldbuggery (April 16, 2013)

Bitten by the gold bug? You’ll do well to heed the past (January 12, 2014)

Once Again, the Gold Narrative Fails (December 2, 2014)

10 Lessons Learned from Gold’s Epic Rise & Fall (January 8, 2014)

 

 

________

1. The full Don Coxe quote actually means the opposite: “The best investment opportunities come from an asset class where those who know it best, love it least, because they have been disappointed most.”

2. Not even the Swiss, who notoriously were happy to take Nazi Gold, even if it was formerly in the teeth of people murdered in Auschwitz. Hard pass on the Swiss.

 

 

 

GLD Spdr, 2011-2021

 

GLD ns SPY, 2011-2021

 

SPX vs Gold Index, 1981 – 2021

The post Gold & DeFi: A Conversation appeared first on The Big Picture.

Articles

OpEx Frontrunners BTFD After Stocks Suffer ‘Good News Is Bad News’ Dump

OpEx Frontrunners BTFD After Stocks Suffer ‘Good News Is Bad News’ Dump

Philly Fed spiked more than expected (despite employment, new orders,…

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OpEx Frontrunners BTFD After Stocks Suffer 'Good News Is Bad News' Dump

Philly Fed spiked more than expected (despite employment, new orders, and 6-month outlook all plunging), retail sales surged more than expected (despite a tumble in motor vehicle sales), and continuing jobless claims fell to a new post-COVID low (despite total number of Americans on the dole rising back above 12 million).

All good news on the face of it - so 'Sell Mortimer Sell' was the message for markets as investors threw a mini-taper-tantrum sending stocks, bonds, gold, and crude lower as the dollar spiked.

As Goldman's Chris Hussey also noted, today may simply be a case of 'sell the news,' ahead of next week's FOMC meeting. The S&P 500 is still up 18.7% ytd, despite the advent of the Delta variant and the ensuing downdraft in GDP growth forecasts for 2021. In other words, going into September, the bar had been set high. And a big driver of strong returns -- ultra-low rates -- is facing a bit of uncertainty ahead of next week's FOMC meeting (where the committee may indicate that it is preparing to announce a cut in QE in November .

Of course while stocks tumbled out of the gate from the cash open, inevitably the dip-buyers could not resist. However, some modest weakness at the close left stocks marginally lower on the day with Nasdaq the small winner...

This probably helped convince them...

As everyone and their pet rabbit dived in to front-run tomorrow's option-expiration ramp (Friday, September 17th is a large Triple Witching expiration which means that many stocks/ETFs/Indicies have large options positions that will be closed at 4pm EST on Friday). Specifically, updated open interest figures now show 35% of SPX, 50% SPY, and 35% of QQQ gamma expiring tomorrow. As you can see below we now have 4465/75 as a “pin point” which a sharp drop in the SG Momentum down to 4400.

What this essentially says is that we can anticipate high volatility on a break of 4465, with 4400 now the major support marker...

The S&P maintained its bounce off the 50DMA again...

Cyclicals decoupled from Defensives but both saw dump'n'pumps today...

Source: Bloomberg

Shorts were squeezed once again...

Source: Bloomberg

The dollar spiked to the key resistance level at the trough of Jay Powell's Jackson Hole Day speech...

Source: Bloomberg

Treasury yields spiked too today, but while the short-end is now higher in yield on the week, the long-end remains down 5bps...

Source: Bloomberg

But once 10Y Yields had tagged the pre-J-Hole speech levels, yield reversed lower...

Source: Bloomberg

Cryptos were mixed today with Bitcoin down very modestly, unable to hold $48,000 for now (ETH managed gains, hovering around $3600)...

Source: Bloomberg

Gold plunged again today, back below $1800...

Potential support for gold stands around $1,682/oz., the 38.2% Fibonacci level from its December 2015 low to 2020 peak.

Oil prices dumped and pumped like everything else to end unchanged, with WTI just below $73...

Finally, this is not normal...

But this is...

Let's just hope The ECB and The Fed are bluffing... or lots of freshly-minted stock-trading gurus will get quite a reckoning.

Tyler Durden Thu, 09/16/2021 - 16:00
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Economics

Foreigners Sold The Most US Stocks In July Since 2007 ‘Quant Crash’, China Bought Treasuries

Foreigners Sold The Most US Stocks In July Since 2007 ‘Quant Crash’, China Bought Treasuries

In the latest TIC data – from July – Treasuries…

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Foreigners Sold The Most US Stocks In July Since 2007 'Quant Crash', China Bought Treasuries

In the latest TIC data - from July - Treasuries (and agency debt) were bid by foreigners as a wave of fear crossed the globe over the Delta variant, and stocks (and corporate bonds) were dumped en masse.

  • Foreign net buying of Treasuries at $10.2b

  • Foreign net selling of equities at $34.3b

  • Foreign net selling of corporate debt at $11b

  • Foreign net buying of agency debt at $20.7b

In fact, July saw the second biggest selling of US stocks by foreigners since the August 2007 Quant Crash (as the re-emergence of COVID - in its Delta variant - sparked fear across markets mid-month before bank buybacks rescued them)...

On the bond side, China broke a 4 month streak of selling and bought $6.35bn of US Treasuries in July...

Source: Bloomberg

Japan’s holdings climbed in July by $30.5b to a record $1.31t

Source: Bloomberg

Luxembourg, Belgium, and Switzerland all saw notable selling of US Treasuries in July.

Finally, we note that the trend of 'rotation' from bonds to gold has continued in recent months...

Source: Bloomberg

Will that trend change or accelerate next week if The Fed hints at tapering?

Tyler Durden Thu, 09/16/2021 - 16:16
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Precious Metals

The United States reported a 0.7% rise in retail sales. Should I sell Gold?

The gold price has weakened more than 2% this Thursday and reached the lowest level in a month after the U.S. dollar climbed following a better than expected…

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The gold price has weakened more than 2% this Thursday and reached the lowest level in a month after the U.S. dollar climbed following a better than expected rise in U.S. retail sales for August. The United States reported a 0.7% rise in retail sales, raising investors’ expectations that the Federal Reserve will soon begin tapering down monthly bond purchases.

Fundamental analysis: U.S. retail sales figures put pressure on Gold

Gold price remains under pressure this Thursday after the U.S. dollar climbed following a better than expected rise in U.S. retail sales for August. The better than expected results positively influenced the U.S. dollar, and the most significant force behind the Gold price slide is the appreciation of the U.S. dollar.

Investors have started to behave nervously amid concerns that the Federal Reserve will have to tighten its ultra-loose monetary policy sooner than anticipated. Investors will continue to pay attention to the Federal Reserve commentaries looking for any clues, but surging COVID-19 cases could boost demand for Gold because this precious metal is considered a safe-haven asset.

“Risk appetite among market participants continues to be high, as reflected in steep rises in energy and base metals prices. Stock markets remain stable, and what is more, there has been an unexpected and considerable brightening of sentiment among industrial companies in the New York Fed district in September. Gold was not in demand in this market environment,” Commerzbank analyst Daniel Briesemann said in a note.

On the other side, Wall Street’s three main indexes continue to trade in a bull market while U.S. Federal Reserve Chairman Jerome Powell said that inflationary pressures are likely to be temporary. The coronavirus Delta variant is fueling concerns about the recovery path, but the U.S. economy continues to perform well.

The U.S. Initial Jobless Claims fell to the lowest level in almost eighteen months, and the renewed U.S. dollar strength on the back of robust U.S. data continues to negatively influence the price of Gold.

Technical analysis: $1700 represents a strong support level

Those whose interest is to invest in commodities like Gold should consider that the risk of further decline is still not over.

Data source: tradingview.com

The gold price has weakened more than 2% this Thursday, and if the price falls below $1700 support, the next target could be around $1650. The strong resistance level stands around $1850, and if the price jumps above this level, it would be a signal to trade Gold, and we have the open way to $1900. 

Summary

Gold price remains under pressure this Thursday after the U.S. dollar climbed following a better than expected rise in U.S. retail sales for August. The U.S. Initial Jobless Claims fell to the lowest level in almost eighteen months, and investors have started to behave nervously amid concerns that the Federal Reserve will have to tighten its ultra-loose monetary policy.

The post The United States reported a 0.7% rise in retail sales. Should I sell Gold? appeared first on Invezz.

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