Nick Hodge,
Publisher
Dec. 17, 2024
Interest rates have gone up since the Fed began cutting. The dollar has also strengthened.
And yet, gold is up.
It flies in the face of traditional correlations but this is not a traditional time.
After gold approached $2,800 in late October, it underwent a classic and healthy 10% correction.
It bounced right off the $2,530 level in mid-November, and has since risen back toward $2,700. It remains bullish, though I foresee a consolidation at these levels that lasts into the new year. Which way it breaks after that will have to do with the actions of an unpredictable incoming Trump administration, with $3,000 in reach by Q2 if their dog stays on the porch.
There are also new drivers [back] in play.
Central banks are back to buying gold. But this time it is being led by Europe (Turkey and Poland) and India instead of China, though there is continued buying from the East as well. The world’s PhD planners bought 60 tonnes of gold in October, the largest monthly amount of 2024.
Prices, as prognosticated many times in these pages, are back on the rise. The Consumer Price Index report for October showed that prices have risen 2.7% year-over-year and core prices were 3.3% higher. With prices also rising in September, this puts a firm end to any “cooling prices” narrative and makes the Fed’s move to cut look even more wrongheaded. On the CPI news, which came on December 11, odds of a rate cut on December 18 climbed to 95% and gold added $25.
If you’re confused about why the Fed is cutting while inflation is still with us, you are not alone.
The answer lies somewhere in the fact that the Fed has chosen to keep greasing the wheels of the system in order to keep servicing the debt. They are choosing stability of the system, which benefits asset owners, rather than reducing inflation, which harms everyone else.
That’s why everyone else — your neighbor, the guy at the gym, your barber, the babysitter, and perhaps the candlestick maker — is buying Bitcoin.
And if they aren’t buying yet, they are thinking about it.
Several versions of this chart made the rounds at the recent New Orleans Investment Conference, showing that of the ~$900 trillion in total global assets, only $12 trillion is in gold and $1 trillion in Bitcoin. Bitcoin’s share of the pie getting even to half that of gold implies a Bitcoin price of several hundred thousand dollars.
Sound money advocates like us have for years questioned, observed, hypothesized, predicted, and experimented.
As the experiment of modern monetary theory plays out and approaches an endgame — even if it takes a decade — we are now at the point of being able to analyze data and draw conclusions.
If you watch what they do and not what they say, the clear conclusion is to own gold and Bitcoin just as the world’s central banks and largest Wall Street institutions are doing.
Indeed, Bitcoin is now approaching “must-own” status for nearly every serious long-term portfolio. It’s now easier for people and money managers to do that on their own with recently approved ETFs, which also means Bitcoin can go into tax-advantaged accounts like individual retirement accounts (IRAs).
Soon, people who don’t manage their own money will demand their advisors get them an allocation to Bitcoin. Blackrock’s Bitcoin ETF is already the fastest-growing ETF in history. It’s only been around for ten months and is bigger than any other ETF launched in the past ten years. It has the most inflows of any ETF in 2024, by far. And the second, third, and fourth top inflow funds this year are also Bitcoin-related.
I am not an either/or guy. I own both gold and Bitcoin. And I think you should, too. It’s going up for many of the same reasons as gold.
The biggest one, of course, is the constant money creation by global governments that generates the perpetual inflation needed to make mounting debts serviceable relative to something you can’t create more of like gold and Bitcoin.
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Call it like you see it,
Nick Hodge
Publisher, Daily Profit Cycle