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This week the markets were almost all lower, with Japanese stocks, copper and crude oil seeing the largest declines. The only rising market was gold stocks, which managed a 2.7% gain.

Checking the charts, conventional equities are now heading into bear market territory, with the Dow and Nikkei closing the week solidly below their 200 day moving averages, while the S&P 500 bounces around right at its 200 dma.

Long bonds are trading at the lower margin of their up-trending channel – there may be a low risk speculation buying them here; if they stay true to form and bounce higher, the profits could be excellent,  but if they start to fall, make a hasty exit.

Gold stocks have been trading above their 200 day average for about a month now, and have tested it as support several times. They are starting to look very attractive as a speculation. Once they close above 6.5 grams, and retest that level as support, I will consider them to be in a bull market.

Bitcoin is trading sideways, performing a bit worse than the USD and EUR, but a bit better than the CAD for the week. Trading volumes have been falling the last two weeks and are now very light; I expect volatility to increase when that trend reverses.

Table of prices in gold for week ending 14-Mar-2014

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This week saw rallies in Coffee and Cotton, and a decline in Copper and long term bonds.

Bitcoin continues to hold at a fairly high level despite the failure of Mt Gox, once the largest Bitcoin exchange, but recently marginalized by problems with withdrawals of bitcoins and government currencies. It will be interesting to see what the underlying causes of these difficulties turn out to be – fraud, technical difficulties, hacker attacks, or something else entirely. In the meantime, the rest of the world's exchanges continue to operate smoothly. One of the key advantages of Bitcoin is that the users act as their own banks: there is no need to trust third parties to hold your money! By keeping your funds in your own wallet, you eliminate the risk of a third part failure like that of Mt. Gox.

I haven't seen anything that changes my opinion that one BTC will buy at least one ounce of gold by the end of 2015.  As I have mentioned before, Bitcoin could fall a long way from these levels and still be in an exponential uptrend; but it is also true that it is highly speculative as an investment. So have fun with it, use it in everyday transactions (which is getting easier every day!) and don't let it become too large a position in your overall portfolio.

Table of prices in gold for week ending 7-Mar-2014

Filed under Banking, Bitcoin, Bonds, Coffee, Commodities by  #

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Over the last week, and over the last month, assets have followed the same basic pattern: stocks mostly higher and currencies, bonds, and commodities mostly lower.  Bitcoin has been the biggest winner by far, rising 29% in the last week and 179% over the last month. In addition to the fast rising price, global trading patterns are shifting as well. Read more below.

The JPY was was the weakest currency, falling 1.2% over the last week and 2.7% over the last month, followed by the CAD which lost 0.6% this week and 2.5% over the last month. The USD fared the best, declining only 0.1% this week, and 1.3% for the last month. The dollar closed at 24.2 mg, and sits 62.7% above its half-life curve. In the last few days the USD has shown some renewed strength, and on Wednesday set a new record high of 67% above the price predicted by the half-life curve.

Bonds were mostly lower, with the short term SHY dropping 0.1% for the week and 1.1% for the month. The long term TLT recovered 1.1% this week, but still fell 0.9% over the last month, performing considerably better than the underlying dollar. TLT continues to struggle with resistance between 2.5 and 2.55 grams.

Stocks were mostly higher, except for the HUI Gold Bugs Index, which fell 1.2% this week, but still managed to gain 2.0% over the last month. At 5.48 g, the HUI is 5.6% above it's recent lows, but well below both its 200 day moving average, and its long term overhead resistance at about 6.5 g.

For the last week, stocks on Japan's Nikkei Index rose the most, adding 6.3%, while the S&P 500 and Dow gained 1.4% and 1.1% respectively. Over the last month, however, the picture reverses, with the S&P gaining 4.5% while the Nikkei advanced just 2.2%. The S&P and Dow appear to be breaking out to new multi-year highs, while the Nikkei is just below it's overhead resistance at 3.68 g.

Commodities were mixed, led by coffee in both directions! For the week, coffee was the biggest gainer, rising 1.5%, but for the last month, it was the biggest loser, falling a whopping 10.4%.  Platinum gained 3.4% over the last month, but lost 0.7% this week to close at 34.7 g, now 8.2% above gold parity. Silver was down 5.0% this week, but is only 0.6% lower for the month, closing at 0.50 g/oz.

As mentioned above, Bitcoin has been exploding in price over the last month. It has also been internationalizing, especially in Asia. 31% of all exchanges between BTC and government-backed currencies now take place in China, in CNY. The world's largest single bitcoin exchange is now BTCChina.com, based in Shanghai. Although still smaller than all the USD exchanges combined, BTC China offers the highest prices for bitcoins, and its customer base is growing fast.

There are several reasons that this makes sense. First, the Renminbi is not generally available for foreigners to hold. So for those outside China, holding bitcoins in a BTC China account allows them to get exposure to the CNY. And for those inside China, Bitcoin makes it possible (and even easy!) to use their CNY to purchase goods and services abroad, over the internet or when traveling, and allows them to get exposure to USD, EUR, and other foreign currencies.

I think this all bodes well for Bitcoin. Where Mt. Gox once handled 80% of all BTC currency exchange, it now handles about 24%. Where once almost all exchanges were in USD, they are now spreading out into EUR and CNY as well. There are many more options to buy and sell gold with bitcoins, as well. And spreads are getting smaller as these markets become more liquid.

In the long run, Bitcoin's price is really driven by adoption rate. As bticoins become more useful to more people, and as their turnover rate increases (the "velocity of money" increases) their value relative to other currencies, including gold, increases.

Since its inception, Bitcoin has shown an exponential growth in value. Because of this, linear charts have a hard time capturing what is happening; prices just shoot up off the chart, appear to swing wildly, and the early years appear to be a long flat line hovering just above zero. For these reasons, I prefer a logarithmic chart like the one below.

There are four lines on this chart. the green represents the value of the USD, the heavy blue represents BTC, the light gray uptrend line shows the general trend for Bitcoin's price, and the horizontal yellow line shows the price of one troy ounce of gold (31.105 grams, or 31,105 mg). Bitcoin finished last week at about 1/3 of an ounce, and currently trades at about 1/2 of an ounce (a bit more in China, 18.9 g, a bit less on Bitstamp, 15.0 g). All this is after the big "spike and crash" on Tuesday the 19th, when BTC was trading as high as 22 g in the US, and 28 g in China.

So we are now knocking on the door of 1 BTC = 1 ounce of gold.

But to actually get there may take some time. the uptrend line I have drawn means that Bitcoin's value increases ten-fold about every 6 quarters. In mid-2012, the value was about 100 mg, so I would expect the value to be stably above 1,000 mg (1 g) by the end of 2013. And another year and a half should see the price stably above 10 g if the uptrend continues. Only 6 months later, at the end of 2015, the price should be stably above 31.1 g, or one ounce of gold.

We are currently well over 10,000 mg. So the BTC price could fall by 90% from here and still be well above the exponential uptrend line. Or the price could move sideways for more than a year and still be above the trend line. Of course, it is also possible that the price could continue to rise rapidly and achieve the one ounce target in a matter of weeks or months, rather than years.

The point is that unless something derails this freight train of widening adoption and increasing utility, I think that 1 BTC buying 1 ounce of gold  by the end of 2015 is baked in the cake. Note that there is no reason it should stop there, but I think that will be a major psychological milestone.

BTC in gold

Bitcoin is still a highly speculative investment. There are many hurdles to overcome – technical, social and legal, before the free market internet currency becomes mainstream. Any one of these could slam the project so hard that bitcoins would essentially lose all of their value.  But every day that passes, and with every new user, and every new shop and site that accepts bitcoins, the risks decline and Bitcoin's value is enhanced.

I apologize for the lack of regular posts to the site over the last few weeks. My family has been traveling, and just keeping the charts up to date has been all I could handle. Now we are settled in Argentina for a few months, and I hope to return to a more regular schedule.

On December 7 & 8, I will be attending the Latin American Bitcoin Conference in Buenos Aires. It looks like it will be an outstanding chance to meet many of the leaders of the free market money revolution, along with many Bitcoin developers and entrepreneurs from around the world. If you will be attending, please drop me an email and I would love to get together.

Table of prices in gold for week ending 15-Nov-2013

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Markets were almost all higher this week, with only the HUI gold stocks losing ground. Bitcoin and the Japanese Nikkei stocks gained more than any other asset classes. The USD and JPY the strongest of the government-issued currencies. On Friday I was a guest on Power Trading Radio with John O'Donnell. We talk about stocks, housing, income, and discuss our forecasts for the price of gold. Check it out!

Bitcoin, the free market internet currency, rose 8.0% to 3.5 g, the highest level seen since the all-time high back in April. Volume on Mt. Gox was low, only 25 kg; see my remarks below for more on this. The USD rose 3.5%, with the dollar closing at 24.6 mg, now 62.8% above its half-life curve.  The JPY was up 3.2%, while the CAD and the Euro each gained 2.8%.

Bonds moved higher, with the short term SHY rising 3.4% while the long term TLT added 3.3%. Note that neither bond gained as much as USD cash, and that shorter maturity was stronger than the longer one. For most of the week, TLT's advance was blocked by resistance at the 2.52 g level; but on Friday, the USD's super-strength pushed TLT over the top to close at 2.59 g (just under the bottom of the old rising channel) . Watch closely next week to see if this is a real breakout, with 2.52 g becoming the new support, or merely a fake-out.

Stocks mostly rose even more than bonds, led by Japan's Nikkei Industrials, which advanced 6.0%. The Dow Jones Industrials gained 4.6%, and the S&P 500 rose 4.3%. The HUI Gold Bugs Index was the week's lone decliner, falling to a new 22 year low of 5.13 g on Tuesday before recovering to close down 0.9% at 5.21 g.

HUI Gold Stocks

Commodities were all higher, led by coffee, which advanced 5.6%. Silver added 2.9% to finish the week at 0.529 g per ounce.  Platinum gained 2.2% to close at 33.6 g, now 8.2% above gold parity. Copper was up 2.6%, while crude oil rose 1.7% to close at 2.5 g/bbl.

Earlier I mentioned that Bitcoin trading volume on Mt. Gox was light this week. This trend as been bothering me, and I recently began to investigate how trading is evolving across the various exchanges. Bitcoincharts.com lists 39 USD exchanges, but most of these are not currently active, and only three of them, Mt. Gox, Bitstamp, and BTC-e, account for virtually all of the USD trading volume.  

Prior to April of this year, a chart of the weighted average of the three top exchanges was almost identical to a chart of Mt. Gox, because over 80% of the trading occurred there, and prices on the other exchanges tended to follow Mt. Gox prices pretty closely.

After April's wild swings, however, things began to change. The price differential widened, and the percentage of trading volume on Mt Gox has gradually declined. As I mentioned, prior to April, it was rare to see a day when Mt Gox was handling less than 80% of the trading volume. By August and September, this was down to around 50%, and so far in October, it has fallen as low as 20%, and for the last week has averaged 38%.

So while average daily trading volume on Mt Gox was only 25 kg, total trading volume averaged about 62 kg per day.

To track this situation, I have added a third chart to the BTC page showing the difference between the Mt Gox price and the weighted average of Bitstamp and BTC-e prices, and tracking the percentage of total volume handled by Mt. Gox. (Note that the "1,000" mark on the right scale serves as "100%" for the yellow volume percentage graph.)

BTC-USD Exchanges

Table of prices in gold for week ending 11-Oct-2013

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Reader Daniel P wrote in a recent comment on the Half-Life of the US Dollar page:

Dear Sir Charles, thank you for an exciting and informative site it is much appreciated.

When was the last time the USD moved +60% above the trend line (are there similarities to the big jump just before dot.com crash in 2000?), and should we expect a corresponding deviation to -60% as a correlation to the upward move? Would this mean we could expect a gold price of around $2,800-3,000 when the USD reverses to -60% below the expected trend line?

I think you your idea and concept of the “Half-Life of the US Dollar” is a very smart and a useful indicator for the predicted trend of the USD. It would be interesting to see the graph in more detail for example where it follows your “The US Dollar since 2006” graph? Any thoughts on how I can make my own “Half-Life of the US Dollar” graph?

Best regards,
Daniel P

Daniel raises some very important points. My theory is that the Fed made decisions and took actions after the tech-bubble crash that started them on the path they have been pursuing since. This path involves devaluing the USD at a relatively steady rate of decay.

Someday they will choose (or be forced) to abandon this policy, or the public will come to distrust the Dollar so much that it will lose most or all of its value. At that point, the half-life curve will be obsolete. So even though I chart it out over decades to come, I don’t really think that it will play out that way – the curve just shows roughly what to expect if the policies and actions, and the market’s response to them, continue as they have over the last decade or so.

Does this big deviation from the curve mean that the policies are at an end, that the half-life curve is now obsolete, and that a new era of USD strength is beginning? Maybe, but I doubt it – based on the fundamentals of debt levels, Fed policy statements, and the way the US Empire is tracking the demise of every earlier empire in history, I expect we will see the decline stretch out over many years, if not decades.

My guess is that the current large positive deviation will be followed fairly shortly (over the next year perhaps?) by a large negative deviation. To actually reach -60% deviation by the end of 2014, the USD would have to fall from its current lofty level of 24.5 mg to its predicted value of around 14 mg, and then fall 60% further to about 5 mg.  That's a HUGE swing, implying a USD price for gold in excess of $6,500/oz. Unless there is an abrupt loss of confidence in the Dollar, I doubt we would see that in one straight decline; much more likely, to reach that level we would have a series of declines and rallies over several years. The half-life curve suggest that we should see $6,500 gold during 2020.

A more typical level of "undershoot" for the USD would be 10 to 20% (10 to 11 mg), implying a gold price between $2,800 and $3,200 by the end of 2014.

As Niels Bohr observed, "Prediction is very difficult, especially if it's about the future." And that goes double for gold prices! But until we see a dramatic shrinkage in the size of governments and their spending habits, a return to sound free-market economics and sound money, I think it is safe to say that the trend for fiat currency values will, in spite of occasional updrafts, be down.

PS – to make your own half-life curve, just import gold prices into a spreadsheet, divide 31.1035 by each gold price to get a price for the dollar, and run a logarithmic curve-fit function on the data points (in my spreadsheet, it's an array function called LOGEST).

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Markets were mostly higher this week, with government currencies, bonds and commodities all up while stocks were mixed and Bitcoin was slightly lower. The Japanese Yen gained more than any other asset class, while the HUI mining stocks lost the most ground.

The JPY rose 3.7%, followed by the Euro, which gained 3.1%. The USD rose 2.4%, with the dollar closing at 23.7 mg, now 56.8% above its half-life curve.  Bitcoin, the free market internet currency, rose to 3.4 g before falling sharply on news of government closure of the Silk Road trading site, but ended the week at 3.2 g, down only 0.5%. Volume was 94 kg.

Bonds moved higher, with the short term SHY rising 2.4%, in line with the underlying USD, while the long term TLT added 1.8%. TLT's advance continues to be blocked by resistance at the 2.52g level.

Stocks were mixed, with the S&P 500 rising 2.3%, and the Dow Jones Industrials gaining 1.1% while the HUI Gold Bugs Index fell 1.5% to 5.26 g.  The  HUI is now just 1.1% above it's 22 year low of 5.205 g set three months ago.

HUI Gold Stocks

Commodities all rose, led by crude oil, up 3.4%, and coffee, which advanced 3%. Silver added 2.6% to finish the week at 0.514 g per ounce.  Platinum was little changed, gaining just 0.2% to close at 32.9 g, now 5.8% above gold parity.

Table of prices in gold for week ending 4-Oct-2013

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Markets were mixed this week, with currencies and bonds mostly higher while stocks and commodities were mostly lower. Bitcoin gained more than any other asset class, while silver lost the most ground.

The Canadian Dollar was the only declining currency, down 0.3% to 22.5 mg. The JPY and USD each rose 0.6%, with the dollar closing at 23.2 mg, now 52.7% above its half-life curve. Bitcoin, the free market internet currency, rose 3.8% to close at 3.2 g. Volume was just 28 kg, the lightest in over a year. See below for more comments on Bitcoin pricing.

Bonds moved higher, with the short term SHY rising 0.7%, slightly better than the underlying USD, while the long term TLT added 2.2%. During the week, TLT pushed right up to, but failed to overcome resistance at 2.52g, falling back  to close at 2.47 g.

Stocks were mostly lower, with the Nikkei, up 0.7%, the only gainer. The S&P 500 was down 0.5%, while the Dow Jones Industrials and the HUI Gold Bugs Index each fell 0.6%.  The Dow settled just below its 355 g support level, but the HUI ended at the lowest level since August 8th, and only 2.6% above it's 22 year low of 5.205 g set three months ago.

Commodities were mixed, with Cotton gaining 3.4% and Copper rising 1.1% while the rest of the complex fell. Silver led the losers, falling 4.4%, while Crude oil was 1.1% lower.  Platinum was down 1.5% to 32.8 g, now 5.6% above gold parity.

Silver gave up all of the prior week's gains and then some, ending at a new low for the month of 0.501 g/oz.

Silver

I have received many questions about the my use of Mt. Gox USD prices as the basis of my BTC chart. Because the USD represents about 72% of all BTC trading (with the EUR next at 9% and CNY third at 7%) and because gold is usually quoted in USD, using a USD price for bitcoins makes sense.

Of the exchanges reporting to bitcoincharts.com, 64% of the USD volume goes through Mt Gox, with bitstamp making up 30%, and btc-e handling 6%. So at this point, Mt Gox is still by far the largest single exchange.

Prices on Mt Gox are a bit higher than on the other USD exchanges. This may be due to greater difficulty in getting USD funds out of the Mt Gox system; if moving funds out was fast and easy, a large profit could be had buying BTC on bitstamp and selling them on Mt Gox, which would rapidly push the prices back into line. But speculators using FX trading to increase their BTC holdings, rather than seeking a profit in USD, probably find the tight spreads and higher volumes on Mt Gox make it the best platform for their needs.

Bitcoincharts has no way to track offline person to person transactions, and as these offer a great deal more privacy than the large online exchanges, they may be getting a significant amount of volume that goes unreported.

Even though Mt Gox prices are a bit higher than bitstamp and btc-e, I think that the overall shape of the chart would be little different if I used their prices instead. I will continue to monitor this situation and if Mt Gox marketshare shrinks, or the price gap widens, I may look at rebuilding the chart based on a volume weighted average of all the active exchanges. (If I took that approach today, the closing BTC price would be shown as 3.11 g rather than 3.22 g.)

Table of prices in gold for week ending 27-Sep-2013

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Markets were mostly lower this week. Bitcoin and crude oil fell more than any other asset classes, while silver was the biggest winner. Copper and the Nikkei stocks were the only other assets in the black.

Government-issued currencies all declined, led by the USD, which closed at 23.1 mg, down 2.3%, now 51.2% above its half-life curve. Bitcoin, the free market internet currency, fell 8.1% to close at 3.1 g. Volume was very light at 32 kg.

Bonds lost ground this week, with the short term SHY falling 2.1%, slightly better than the underlying USD, while the long term TLT dropped 1.0% to close at 2.42 g. Last week TLT closed above its 200 day moving average; this week it continued the rally, but failed to overcome resistance at 2.52g, falling back to close just above the 200 DMA.

Stocks were mostly lower, with the Dow Jones Industrials and the HUI Gold Bugs Index each falling 1.8%.  The S&P 500 was down 1.0%, while the Nikkei Index was up 0.7%. In the previous week, the Dow Jones Industrials bounced smartly off of the 61.8% Fibonacci support level, and this week they seem to be finding support at around 355 g (about 11.5 ozt).

DJIA

Commodities were mixed, with silver gaining 2.3% to close at 0.524 g/oz, and Copper rising 0.3% while the rest of the complex fell. Crude oil was the biggest loser, falling 5.5% to 2.4 g per barrel.  Cotton declined 4.4% while Platinum was down 1.9% to 33.4 g, now 7.2% above gold parity.

Crude's drop gave up most of the gains for the month, and left it at long term support.

Crude Oil

Table of prices in gold for week ending 20-Sep-2013

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Markets were mostly lower this week. Bitcoin gained more than any other asset class, while gold stocks showed the greatest losses. Silver and long term bonds were the only other assets in the black.

Government-issued currencies all declined, with the Euro leading the way, falling 1.7% and the Canadian dollar losing 1.3%. The USD closed at 22.3 mg, down 1.2%, now 44.9% above its half-life curve. Bitcoin, the free market internet currency, rose 12.5% to close at 3 g. Volume remained light at 58 kg.

Bonds were mixed again this week, with the short term SHY falling 1.2% alongside the underlying USD, while the long term TLT gained 0.4% to close at 2.36 g. Although rising slightly, TLT is still trading below its 200 day moving average.

Stocks were all lower, this time led by the HUI Gold Bugs Index, which fell 8.1% to 5.66 g.  The S&P 500 was down 3.0%, while the Dow Jones Industrials gave up 2.6% to close at 330.3 g. The Dow is still above its 200 day moving average, and is sitting 61.8% above its low of last November.

DJIA

Commodities also declined, with the sole exception of silver, which gained 1.2% to close at 0.527 g/oz. Copper, down 4.6%, and Platinum, down 2.8%, were the worst performing commodities. Crude oil was little changed, falling 0.1% to 2.4 g per barrel.

Table of prices in gold for week ending 30-Aug-2013

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This was a mixed week for everything but government issued currencies, which were all lower. Bitcoin gained more than any other asset class, while cotton and coffee showed the greatest losses. Precious metals gained slightly, and gold stocks were unchanged. This assessment is based on the London PM fix; if the New York close was used instead, most prices given would be about 1.5% lower, and every asset class but silver and Bitcoin would be in the red for the week.

Government-issued currencies declined, with the Canadian Dollar leading the way, falling 2.2% and the  Japanese Yen losing 1.1%. The USD closed at 22.6 mg, down 0.6%, now 46.2% above its half-life curve. Bitcoin, the free market internet currency, rose 8.4% to close at 2.7 g. Volume increased to 61 kg, but was still very light.

Bonds were mixed, with the short term SHY falling 0.7% alongside the underlying USD, while the long term TLT was little changed, gaining 0.3% to close at 2.35 g.  Note again that based on the NY close for gold, TLT was actually down 1.2%.

TLT

Most stocks were lower, again led by the Dow Jones Industrials, which lost 1.1%, while the S&P 500 was almost unchanged, giving up only 0.1%. The HUI Gold Bugs Index was also unchanged at 6.2 g. Japan's Nikkei Index fell 1% to close at 3.14 g.

Commodities were mixed, with platinum and silver rising while the rest of the complex declined. Cotton and coffee were the weakest asset classes this week, giving up 10.3% and 6.7% respectively. Crude oil pulled back 1.6% while copper lost 0.9%.

Based on the London PM fixings, silver rose 0.4% to close at 0.521 g/oz, while platinum gained 0.3% to close at 34.7 g/oz, now 11.6% above gold parity. However, using New York closing prices, platinum fell 1.2% for the week, closing at 34.2 g. Silver's price was the same at London fixing and at NY close.

On Monday, silver reached 0.529 g, just above its multi-year resistance level of 0.525 g, but quickly declined to 0.518 and closed at 0.521, failing this first test. If history is any guide, it may take several more attempts before we find out if this resistance will hold, pushing silver lower. I think this is a strong possibility. For more details on why, check out Keith Weiner's excellent commentary over at the Monetary Metals blog.

Silver

Table of prices in gold for week ending 23-Aug-2013