It’s been 10 years since cryptographically secure digital assets such as Bitcoin came into existence. After an abysmal 2018, some wonder if Bitcoin’s return to life in 2019 has been due to capital fleeing China to escape the effects of Trump tariffs. The charts are mixed, but lately as Chinese currency values fall, cryptocurrencies like Bitcoin have rallied. Time will tell, but as Trump trade threats and Hong Kong anti-extradition protests escalated sharply in June and this past week, there has been an acute inverse correlation of Bitcoin and Yuan values. Cryptocurrencies are not a pseudo asset we care to invest in or analyse other than unique correlations with actual assets such as sovereign currencies and metals.
Gold has been a major outperformer of other precious metals recently and if not for alternate investment choices like Bitcoin, Gold might be even higher than it is today. Both cryptocurrencies and Gold have some anchoring to the US Dollar, but Gold has diverged from its very tight inverse relationship with our Dollar since June, coincident with Chinese unrest over extradition laws in Hong Kong and fears over the trade war.
While Gold has been moving higher on geopolitical based capital flight from China, the technical picture is also Bullish. Our metals report a few months ago discussed a breakout of the $1460’s an ounce in Gold targeting the low $1500’s on its way to test $1600.
Hedge Funds are entering the overbought zone as we test $1500, but we would give Gold another month or two and closer to the $1600 area before looking for an important top. With the US economy weakening near term, it will add fuel to the precious metal fire as capital flight from China seeks free market assets like Gold.