Bitcoin, Swiss Francs and Gold Stocks


The huge winner last week was the Swiss Franc. The Swiss central bank did a sudden about-face last Thursday, dropping its peg to the Euro, and the CHF rose 13.4% for the week while all other major currencies fell 3%-6%.The only other asset category in the black was the HUI gold stock index, which is now hovering just below its 200 day moving average and resistance at about 5 grams. Watch closely to see if this is really a breakout to the upside or just a dead cat bounce. 

Among the losers, bitcoin fell the most spectacularly, dropping 30% to close at 5.2 g. This is solidly below the uptrend line I have been tracking, and unless there is a fairly quick recovery to the 7 g level, it certainly lowers the probability of my forecast for 1 BTC buying 1 gold ounce by the end of 2015. But keep in mind that in November of 2013 bitcoin went from 4.9 g to 30.2 g, and briefly traded over 1 ounce. So there is plenty of time left for this forecast to work itself out, and if the pace of growth has slackened from the exponential rate of the past few years, it may simply take a bit longer to come true. If you've been waiting for an opportunity to buy bitcoin, I would consider taking a small position here, but waiting for an uptrend to become clear before making a substantial bet – and even then, I would keep position size small enough that a total loss won't exceed your pain threshold.

Although they fell 3.1% last week, long term government bonds (represented by TLT) outperformed large cap stocks. And over the last year, they have gained 26.6%, far outpacing most other asset categories. So far, they remain in a solid uptrend.

Although the USD has shown a lot of strength over the last couple of years, that strength now seems to be ebbing. Gold continues to be valued as a safe haven in these troubled times – Russia and China continue to add massive amounts of physical gold to their reserves every month. The fact that physical metal has no counter-party risk is critical: the current unstable financial system could easily break down, causing a wave of bankruptcies that would render many paper assets worthless, even if you placed your trades on the winning side.

I think it makes sense to accumulate a solid core position of physical metals, primarily gold, that will weather any such firestorm. Real assets like productive farmland also make sense. Smaller speculative positions in Bitcoin, select gold stocks, and even long term US government bonds can provide growth potential for the portfolio.

Comments on Bitcoin, Swiss Francs and Gold Stocks Leave a Comment

January 20, 2015

Baron @ 12:40 am #

You've probably thought of this analogy already but just in case you haven't.

I tend to think of Gold as being the liquid in a Galileo thermometer. Everything else is represented by the glass bubbles rising and falling in the liquid.

As for the Swiss Franc it was instructive to see that Gold as a "currency" was acting differently to all other currencies.

Bitcoins to me are a pure 'sentiment' gamble.

David @ 10:42 am #

Being a former computer programmer, I have no faith in bitcoins. Reminiscent of Paul Simon's song "50 Ways to Leave Your Lover", there must be at least 50 ways to get burned on bitcoin. I don't think there's any chance of bitcoin parity with an ounce of gold, ever; but to be charitable I'd give you 1 in a million odds. It looks to me like bitcoin is now on the downside of a ski-slope to 0. Bitcoin makes about as much sense as pet rocks. As for government bonds, why should you have to pay a government for the privilege of sequestering your cash in their debt? It makes absolutely no economic sense why anyone would by government bonds at these prices. Farmland? I grew up on a farm. Farmers grow commodities. Commodities are not very profitable in the current economy. The economics of farming are almost as bad as the economics of mining. Unless you're a mega-corporation that can afford to hire lobbyists to get some subsidy cash flowing your way you're not going to be making any money in farming. The only farmland worth owning is that near growing cities which can be subdivided into housing developments. The strongest contender to hold its value against gold right now is the dollar, but time is on the side of gold. The dollar only looks good in relation to all the other fiat currencies that are rushing to worthlessness faster. HUI should continue to make a comeback in proportion to gold.

David @ 10:46 am #

Oops, "buy", not "by" government bonds. I hate my laptop keyboard! It skips letters and duplicates letters and often fails to capitalize.

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