2020 was a triumphant year for gold bulls, both of the traditional and digital variety.
With central banks hell-bent to ensure liquidity flowed like so much Hendrick’s at any bar top I once perched, the debasement narrative ran rampant.
Deeply negative real rates in the US eliminated the opportunity cost of gold (the yellow kind), and for those who actually believe central banks will, in fact, be successful in engineering inflation, the Weimar hedge was back en vogue.
As the curtain closed on a year defined by existential crises of all kinds, gold boasted its best return in a decade (figure above).
Bullion’s near 25% gain was the best since 2010. I’d remind folks that at the end of the day, this is just an inverse real yields play. So, for the rally to continue, you’ll likely need more of what you see in the visual below.
The surest path to further gains is the successful suppression of the opportunity cost of holding the yellow metal. Deeply negative real rates are, of course, stimulative for risk assets too, especially to the extent they serve to push the dollar lower. Simply put: Nothing precludes gold from rallying alongside stocks, just as it did in 2020.
Meanwhile, digital gold (i.e., Bitcoin) quadrupled over the year, ostensibly on some of the same dynamics driving real gold higher, but also on what was variously billed as “increased institutional interest” and “wider adoption.”
Regular readers are fully apprised of my take on this. Bitcoin is a pure play on the greater fool theory. As long as there’s a greater fool, you’re fine. But it’s a confidence game. There’s no tangible underlying asset, no deliverable, no internal rate of rate of return, and Bitcoin has no meaning by reference to anything other than traditional currencies.
If conversion to dollars (or yen, or euro, etc.) is made illegal by government decree, it will be contraband — only without the benefit of being a physical good, which is what allows trade in other kinds of contraband to continue irrespective of the government’s wishes.
For now, it’s a rip-roaring, delirious frenzy. Bitcoin hit a new high on Thursday, surging through $29,000.
Meanwhile, VanEck is angling to launch an ETF. It would track the performance of the MVIS CryptoCompare Bitcoin Benchmark Rate. The SEC filing is nothing short of hilarious.
“Digital asset networks are dependent upon the internet,” VanEck reminded regulators, who will surely remain skeptical, irrespective of who’s in charge at the SEC. “A disruption of the internet… would affect the ability to transfer digital assets, including bitcoin, and, consequently, adversely affect their value,” the filing added.
As Bloomberg dryly noted, “it’s a bold move for the New York-based firm.”