Weekly Update 2 Aug 2019 Gold Bonds?

Stocks and commodities moved lower, while all other asset classes were mixed. Bitcoin made the largest gains, rising 5.0%. The biggest losses were in palladium and cotton, which dropped 10.6% and 9.3% respectively. We seem to be seeing a shift away from high-flying assets towards relative "safe havens" like gold, Bitcoin, and long term treasury bonds. New safe haven options are coming soon, including gold bonds (more on that below.)

National currencies were mostly lower, with the Japanese Yen, up 0.5%, being the lone exception. The largest drops were in the Canadian Dollar, down 1.9%, and the Chinese Yuan, off 1.8%. The Pound Sterling (not in chart) fell even more, giving up 3.6% to close at a new all-time low of 26.1 mg. USD cash under-performed bonds, falling 1.5% while short term bonds dropped 1.2% and 20+ year bonds rose 2.5%.

Bitcoin fell early in the week, hitting a low of 207.5 grams on Sunday, then began rising, and was given a big boost by Wednesday's Fed rate cut, closing the week at 226.9 grams, up 5.0%. Ethereum also dropped over the weekend, but struggled to make up the losses, finishing down 2.3%. DASH (not shown on the chart below) fell throughout most of the week, seeing only a small dead cat bounce after the Fed announcement. It finished down 9.9%. It now takes over 102 DASH to buy 1 BTC, the most since March of 2016.

Gold stocks outperformed other equities, falling just 0.6%. The European STOXX fell the most, dropping 5.5%, followed by the S&P 500, which gave up 4.5%.

Commodities were all lower, led by palladium, which plunged 10.6% to 30.0 grams, below parity with gold, and its lowest level since November of 2018. Cotton fell throughout the week, but really picked up speed on Friday, closing at 12.8 mg/lb, down 9.3%. Crude oil outperformed the other commodities, falling just 2.4%. Silver also held up better than most, dropping just 2.9%.

Looking back over the last 12 months, only Bitcoin, palladium, and gold stocks are higher, while long term treasuries are little changed. All other assets are lower, in some cases, much lower, including Ethereum, DASH, cotton, and crude oil – all with losses exceeding 30%. A number of assets, including coffee, and major currencies like GBP, CAD and AUD, are making new all-time lows.

My feeling is that increasing allocations to gold, Bitcoin, silver and platinum will pay off in the months (and years) to come. Gold, because it is cash, outside the financial system. Bitcoin, because it is the digital equivalent of gold, instantly transferable over the internet, and held outside the financial system, but with tremendous upside potential as more and more people begin to acquire and use it. Finally, silver and platinum, because they are very near their all-time lows and offer excellent appreciation potential, but also represent wealth that can be held privately, outside the financial system. In particular, silver, which has been a monetary metal for thousands of years, could one day resume that function, so holding some silver in coin form may prove especially useful.

While mining stocks can be leveraged to gold, and have been performing well lately, they bring with them large counter-party risks, as well as many business risks. (I'm sure you've heard the old quip about a mine being a hole in the ground surrounded by liars.) Other investment opportunities are coming soon that you should keep in mind, especially gold bonds. Like conventional bonds, these debt instruments are senior to equity, and therefore inherently safer than owning shares of stock. Unlike conventional bonds, they repay their principle and interest in gold, eliminating risky exposure to national currencies (with the Japanese Yen down 11.8%, the USD down 15.6%, the GBP down 21.6% over the last year, any nominal returns from conventional bonds would have been totally wiped out). I'm watching these very closely, and plan to get involved in the first issue. If this sounds interesting to you, head over to Monetary Metals. I don't receive any compensation, but let them know you heard about it at Priced in Gold!

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