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.
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.)