US stock trading is closed for President’s Day, leaving investors to focus their attention elsewhere. The precious metals and crypto markets remain open as Bitcoin added to its recent gain, climbing another 2.5% this morning to reach $25,000. Gold, on the other hand, traded flat, adding to gold bug frustrations.
Bitcoin rose roughly 11% over the last week while gold fell 1.26%. Many crypto investors still believe that Bitcoin should be viewed as “digital gold” in that it’s a good hedge against inflation.
Based on last week’s hotter-than-expected inflation reports (CPI/PPI), it’d be easy to make that argument. Bitcoin soared while gold – the “true” inflation hedge – slumped. A massive retail sales beat also contributed to inflation fears.
But Bitcoin hasn’t always had an inflation-positive relationship. Bitcoin fell 64% in 2022 despite galloping inflation in the first half of the year. Gold, meanwhile, finished the year flat.
Analysts have said in the past that Bitcoin’s massive 2020/2021 run-up was fueled by the expectation that inflation would rise. That’s partially true.
During that time, however, nearly every risk asset rallied. Stimulus programs sparked an “everything rally” that largely ignored inflation. Gold soared as did stocks and Bitcoin. Each asset class outpaced inflation by a wide margin.
If inflation starts accelerating again, stocks, crypto, and gold should rise. But precious metal investors say that stocks will only appreciate nominally as inflation outpaces stocks, resulting in negative inflation-adjusted (aka, “real”) gains. Gold, meanwhile, will erupt higher once the market realizes that the Fed is unable to bring inflation lower.
That’s the theory, at least. It sort of happened in 1979 when inflation was sky-high and economic fear reached a fever pitch.
Fed Chairman Paul Volcker then stepped in and uncorked a series of huge rate hikes that strangled inflation, bringing it (and gold) substantially lower.
That’s why gold has been unable to outperform stocks long term; something always happens to either crush inflation (Volcker) or the economy improves enough to assuage economic fears.
But according to cycles expert Charles Nenner, inflation is going to soar no matter what the Fed does with rates, resulting in a rally that takes gold to $30,000 per ounce as stocks tank.
“You don’t hear the talk anymore that the Fed is going to lower rates because it is so ridiculous. If you are an insider, the fed funds rate in the futures just made a new high. So, now everybody is expecting a much higher fed funds rate than a few months ago. We are not out of trouble yet, and the bounce in stocks is almost over,” Nenner said in an interview with USAWatchdog.com last week.
He also sees short-term rates rising until 2024 when the fed funds rate peaks at 6.5%. But rates alone won’t shift sentiment lower, Nenner said. He correctly predicted last year that the war in Ukraine would only intensify, and a future escalation would crash stocks another 40% toward the latter half of this year.
“If the West does not understand what is going on and starts bringing in airplanes, I am really afraid for the worst. Nobody has any idea how other countries think. They think you can push everybody around, and you can’t push everybody around. At a certain moment, they will have enough. I don’t think we are ready for a big war, not even to mention a nuclear war. So, something is going to come and make everyone very afraid, and I think this is why the markets will go down,” Nenner explained.
“Based on the war cycle, the war is going to pick up, and it is not going to end well.”
Nenner still thinks, however, there’s “an enormous upside for gold” and that the rally should begin in only a few weeks.
“I say enormous because I have inside information from the big economic summit in Davos. I heard things that can make your stomach turn. They are really concerned with taking out cash. They will have digital currency. Gold can hit $2,500 [per ounce], and we said that years ago. If it goes to that, gold can go to $30,000 per ounce. That could be because maybe things get so bad they have to go back to the gold standard.”
Nenner’s essentially repeating what gold bugs have been saying for years: the death of the dollar will result in a gold “mega cycle” that takes its price per ounce to nosebleed levels.
And, while skeptical investors will always applaud that kind of statement – especially from Nenner, who has been very accurate – it also falls under the umbrella of “this will eventually happen, but who knows when.”
Yes, Nenner will probably be proven correct. But the phrase “nothing ever happens” rings true here. The subversion of the West has been an excruciatingly slow and boring affair. It could be a decade (or more) until the dollar truly dies. Meanwhile, Bitcoin could easily dwarf gold’s gains in the short term. It happened before, and it will happen again.
So, while holding gold in your portfolio is a good idea, waiting on it to rally to $30,000 per ounce isn’t. It will likely take a long time for gold to reach that price level. Meanwhile, spending your energy elswhere (like short-term trading assets that tend to move more than gold does) might be the wiser choice.
