Stocks at All Time Highs, Bitcoin Surging, Gold Crushed

by JDH on August 7, 2021

It is not surprising that the DOW closed at 32,508 on Friday, yet another all-time high.  That is exactly what you would expect with the U.S. (and Canadian) governments printing billions of dollars a week.  It’s not surprising at all.  The money has to go somewhere.

It is also not surprising that Bitcoin, as I write this on Saturday morning, is over $43,500, it’s highest level since the middle of May.  (Of course, given Bitcoin’s volatility, by the time you read this it might be $20,000.  Who knows?).  Again, this is not surprising.  All of that liquidity has to go somewhere, and Bitcoin is a logical destination.

If you print a lot of dollar bills, each of those dollar bills is less valuable than previous dollar bills.  That’s common sense, and that’s what inflation is, and so it’s not surprising that the U.S. inflation rate is now well over 5%, for the first time in forever.  Even in Canada, the Consumer Price Index in June was 3.1%, again, the highest level in forever.  It all makes sense.

So why, then, did gold drop 2.53% on Friday, closing the day at $1,763, the same price it was at in early July, and in mid-April and at the start of March?  At the beginning of June gold traded for many days over $1,900, so with continued money printing and inflation, how can gold not have moved in six months?

I have no idea.

I can’t explain it.

My only theory is that the drop in gold corresponds to the increase in Bitcoin, so investors (or speculators) are shifting funds from the metal store of value to the digital store of value.

Since July 21, Bitcoin has increased by 50%.  (Hard to believe, but true, but that’s because Bitcoin dropped by just over 50% in the 96 days preceding July 21, so it was merely starting the bounce back to where it was).  During that same period, gold dropped over 4% (most of it on Friday), so a shift from Bitcoin to gold is a plausible theory.

Note: The market capitalization of Bitcoin is currently around $800 billion.  The market cap of gold is over $11 trillion, so Bitcoin is a much smaller market and therefore is subject to much larger price swings.

That’s all nice in theory; so how does one profit from this knowledge?

If you are speculating directly in Bitcoin, it’s easy: pick your targets, and place your buy or sell orders.  Bitcoin is not yet back to its all time high of $65,000 set in mid-April, but after a 50% run, some consolidation is expected, and August is typically a slow month, so placing sell orders for Bitcoin around $45,000 seems prudent (or around $56,000 Canadian).

For those of you who are more conservative and playing with stocks, sell orders for QBTC at $57 Canadian and BTCC.B at $8.30 Canadian are good levels to lock in profit.

Ethereum did a hard fork this week and is on a run, so I see no point in selling it, yet.

I’m not recommending that you bet the farm on crypto.  This is not financial advice, merely speculation on how to handle that small portion of your portfolio devoted to crypto.

I’ve got to believe that the stock market is due for a pullback at some point, but I have no idea when, so beyond taking profits and holding some cash, I don’t know what to tell you.

Fun times.  More next week.