2020 has been a good year for gold. Gold is up almost 18.93% in 2020 compared to the S&P 500 which is only up 12.42%. A new high of $2,089 was made in August. This took out the previous high of $1,923 that was made back in September of 2011.
Over the past five years gold has kept decent pace with the S&P 500. Although the S&P 500 has outperformed gold during that time 77.94% to 53.12%, there have been years in which gold outperformed. In 2018 gold was down 2.61% and the S&P 500 was down 7%. And so far in 2020 (as mentioned above) gold is up 18.93% compared to the S&P 500 being up 12.42%.
S&P 500 shown in purple above, compared with gold
It’s was a tough road to get to that new high. Five years ago gold was at a low of $1,045, in November of 2015 to be more precise.
I started buying gold in December of 2012 when gold was trading north of $1,660. I dollar cost averaged in and even bought some gold when it was trading around $1,100.
Gold since 2010. The green bar is the $1,790 price level
Gold is trading at about $1,815 as I write this. I believe this is a key price. While reading technicals could be akin to tea leaves, it is one of the few tools we have when evaluating gold price.
As you can see from the chart below, within about $10-20 of $1,800 there was resistance in 2011 and twice in 2012 when gold tried to rally but sold off again. In other words, buyers would bid the price of gold up to around the $1,800 level, but then sellers would come in and drive the price back down.
Fast forward to 2020. In March when things were going crazy everyone was selling. Gold went down along with stocks. But then around the $1,500 level buyers outnumbered sellers and gold proceeded to rally up to it’s latest high of $2,089.
During this time there was resistance more around the $1,750 level. It touched $1,800 in April and then in June. But instead of selling off considerably, it just bumped around between roughly $1,700 and $1,800 before a flurry of buyers sent the price to the new high in the last two weeks of July.
The move in July was fairly rapid and aggressive, moving nearly $300 in just a few of weeks. Since then gold has been trending downwards. Buyers seem rather squeamish at these prices and gold has sold off since August and currently is hovering around $1,815.
An analogy for markets and price movement are lungs. You can’t breath in (buying) or out (selling) constantly, you need to exhale in order to breathe more. With the rapid price rise we’ve seen in 2020, it makes sense gold would sell off and exhale some.
The question is wether gold will continue to rise in price in the remaining weeks of 2020 and beyond or if it will move down or sideways.
Future Price Guesses
Gold, like any other asset, can either move up down or sideways in price.
It has been trending down over the past few months. At the $1,800 level the resistance encountered in 2011 and 2012 could serve as support and gold could consolidate in price here and make another run at a new high.
Based on the nice rally up to $1,815 that could be the more likely case.
If gold does go back down to $1,750 or lower I think it will continue to go lower until there is another catalyst. I doubt gold would go lower than $1,450.
As I’ll discuss more in the last section, I think a Biden-Harris administration coupled with COVID-19 should be a great environment for gold.
Bitcoin Makes New Highs
Bitcoin has made new highs of $19,625 in November of 2020, taking out the previous high of $19,497 back in December of 2017. It is certainly possible that Bitcoin is taking some of the bidding away from gold as a save haven asset.
Opting Out
Alternative assets like gold are a way of opting out of the traditional financial system. Gold is also often considered an inflation hedge and safe haven asset.
I think it is more likely there will be a Biden-Harris administration in the White House. I think lockdowns are more likely throughout the United States and the world. Governments are paying people to stay home and seem intent on preventing even one more COVID-19 death regardless of other deaths or consequences.
I don’t think there is enough debate or discussion on what the consequences of the lockdowns are or if they are even effective.
Small businesses going out of business, unemployment rising, and other byproducts of lockdowns such as increased depression, suicide and substance abuse should be weighed against the effectiveness and results of lockdowns.
Regardless of their efficacy and consequences, lockdowns means more spending and stimulus. Not only that, but fewer people working means fewer goods and services that are available to buy.
I believe assets like gold and silver will do well in this environment and are an important part of my diversified investment holdings. I think it is important to have 10-20% of my portfolio in precious metals like gold and silver.
Disclaimer: None of the above is investment, health or legal advice.
Since no one from BitBays.com or MixCoins.com support is returning my emails and their address in London is a real estate company, I have no choice but to conclude that MixCoins is a scam and BitBays was a scam. If anyone from MixCoins/BitBays can come forward and explain why it isn’t a scam and provide me with access to the Bitcoins I have (or had) on there site, I am willing to make other considerations. As of now I have to conclude that the fraction of a BTC I had on BitBays is lost.
Unfortunately I wrote about BitBays and later Mixcoins.com previously and put some Bitcoin on their site to take advantage of their arbitrage fund. I first personally deposited Bitcoins there in July of 2015 and was able to successfully deposit and withdraw. My last successful withdraw was in April of 2017.
On September 4 of 2017 I received the following e-mail:
In hindsight this was a big warning sign. Around this time MixCoins also implemented a Know Your Customer or “KYC” requirement. However, since I was still able to login using my existing username and password to MixCoins.com I didn’t think too much of it.
With the more recent rise in Bitcoin this year, I decided to look into this more. I contacted MixCoins.com about doing KYC and received no response after several weeks of trying. At this point the alarm bells were ringing.
I have contacted Mike Gropp on LinkedIn. On his profile he is the “Co-Found & Chief Compliance Officer” of Bitbays from July of 2014 – July of 2016. I contacted him in June of 2020 and he advised he hasn’t “been involved in BitBays/MixCoins for years” and that he isn’t “sure what they are up to these days.”
He provided me with an email address, which I contacted, but received no response as of writing this.
So having been burned by BitBays, what lessons can I learn?
1. If It seems to Good to be true, do your Due Diligence
I think the old adage “if it seems too good to be true then it is” is helpful, but it could cause you miss out on opportunities. I was skeptical of the arbitrage fund on BitBays that claimed to pay out 10.96-12.96%. However, it made sense to me and in my testing it worked. I also messaged back and forth with one of the purported co-founders, Mike Gropp. BitBays was also featured on Forbes’ website.
But despite my reasons for believing that BitBays.com were legitimate, I didn’t do enough due diligence to prevent me from getting scammed and losing the Bitcoins I left on their site.
2. Stay diversified
One thing I did reasonably well is I didn’t keep all my BitCoins at BitBays. I kept my position there small. While it still stings to lose some BTC, especially with it making new highs, it could have been much worse.
3. A trusted custodian is worth a lot
There are other more established Bitcoin exchanges like Coinbase that don’t offer an arbitrage fund. If you’re going to entrust an organization with money you need to ensure they are worthy of trust.
We are weeks if not months into various shutdowns in the United States due to the novel coronavirus. The government has already taken many moves to try to soften the economic impact of the stay at home orders, layoffs and other effects caused by attempting to slow the spread of the virus.
Interest rates have been slashed back down to zero. States who have made irresponsible choices on pensions and spending are requesting bailouts. Unemployment is spiking. Stimulus measures are being passed.
The US Economy is based on consumption and debt. Over the long term an economy can’t survive based on consumption and debt. Long term prosperity is based on producing more than you consume. The US consumes more than it produces and makes up the difference with debt. But this article isn’t intended to address that. Taken at face value, the US Economy is based on debt.
With the majority of US states in some type of lockdown. People can’t go out and spend money. Just a few of the impacts: travel, collegian and professional sports, going out to bars, dine-in restaurants, movie theaters, and amusement parks.
People can still shop online to consume and restaurants can serve via takeout and delivery. But the fact is there are major disruptions to the supply chain and people staying home are going to be spending less.
When I look at the markets. They seem to believe that either the stimulus will make up for any disruptions and/or the worst is behind us. The S&P 500 for example, fell over 35% from the peak, but has rallied back and is down just over 14% from the February 19 high of 311.59.
I do think the US government backed by the Fed will print and spend and stimulate the economy as much as they can. But the Fed can’t print masks, toilet paper, food, or goods and services.
The inevitable result will be price inflation and shortages. I don’t want to be doom and gloom. While there are real risks there is no need to panic over COVID-19. People have an amazing ability to adapt and unencumbered entrepreneurs are incredible at generating wealth and increasing standards of living for everyone.
However, there are real challenges and owning alternative assets like gold and silver could be a great way to protect wealth.
I also read a great article that compares the stagflationary episodes in past decades and what investments did well then. It isn’t a quick read but provides detailed and valuable information about What a Secular Bear Market in the 2020s Could Look Like.
In time for Christmas gold has moved up above $1,500 and as of writing is trading north of $1,510.
I had previously written about how gold has been on the receiving end of a severe price drubbing. Not so now.
The fundamentals of gold are very strong. Gold was is a downward channel and this strong move upward could be a continuation of the gold bull market that began at the end of 2015/early 2016.
The $1,450 level looks like strong support. Gold would need to break through the $1,520 and $1,545 levels to retest the six year high set 4 September of $1,566.
In what I describe as an anti-Black Friday sale, Goldmoney announced on the 29th of November a new $10 per month minimum storage fee.
This goes into effect on 1 January 2020.
Goldmoney (formerly BitGold) already had storage fees, but they were proportional. Now, smaller accounts might not make financial sense anymore.
I’ve determined that Goldmoney doesn’t make sense for me anymore.
Goldmoney Fees are Too Darn High
It is always important to understand the fees a financial services company charges, and Goldmoney has plenty. There is a 0.5% gold buy/sell fee and a $20 wire transfer fee for withdrawals (funding can be free with EFT).
Storage fees vary by location and the lowest cost locations are .01% per month (London, Hong Kong, Zurich, Singapore).
However, this new a $10 per month minimum fee is a killer. In order to pay just .01% per month, you’d need to have at least $100,000 in gold stored.
As a simple example, $10 per month fee on $120 worth of stored gold would be equal to the value of the gold stored after just one year.
Some other considerations, which in my view don’t help enough, are that Goldmoney does offset the minimum fee with commissions paid and the accounts are insured.
However, your homeowners insurance or renters insurance might cover your safe deposit box as well.
If you have a larger account, insurance is important to you, or conduct a lot of transactions, Goldmoney might make sense.
Goldmoney Doesn’t Make Sense for Smaller Accounts
I was previously an advocate of this low cost way to store physical precious metals around the world. With this new development in fees I have decided to withdraw my endorsement of Goldmoney.
Because of the smaller amount of Gold I have with Goldmoney, I’ve elected to sell all my gold in their custody. At this time I have no intention of doing business with Goldmoney again.
The insurance is an important consideration, however, a safety deposit box or other secure location is going to be much more cost effective for the small investor.
If ever there was a case study on the advantages of name recognition and first mover it is Bitcoin. There are dozens if not hundreds of altcoins technologically superior to Bitcoin, that have a market cap significantly lower than Bitcoin. Some of the major Bitcoin flaws I see are the following:
Bitcoin is slow, taking a minimum of 10 minutes per transaction but realistically at least 20 or more minutes.
Bitcoin transactions are expensive
It is energy intensive
Source: bitcoinfees.info
Let’s say you want to use Bitcoin to buy a $2 cup of coffee. You’re going to have to pay $0.36 cents, wait 10 minutes for the transaction to get picked up, and nearly all vendors require 1-2 transaction confirmations to prevent double-spending. It doesn’t work practically speaking.
And yet the Market Capitalization of Bitcoin is over $143 billion. The next closest cryptocurrency, Ethereum, doesn’t come close, having a market cap of $18.8 billion.
The price and Market Capitalization of Bitcoin peaked in December of 2017. The market cap was as high as $327.1 billion on the 16th of December.
Bitcoin was groundbreaking and truth be told I still own some Bitcoin. But I believe that if another cryptocurrency took its place as the biggest crypto by market cap it would be a good thing. I’m calling for the death of Bitcoin.
I also think this provides an investing opportunity, or perhaps more realistically, a speculative opportunity. There are a variety of other cryptocurrencies that excel far beyond Bitcoin in a variety of ways, be it speed, security, anonymity, energy efficiency, user-friendliness, the list goes on.
I think this provides a speculative opportunity. Cryptocurrencies like EOS or other projects with real-world use cases could go up dramatically in value. There are hundreds of cryptocurrencies and a lot of them will probably be worth very little in the mid to long term.
It’s worth educating yourself on the various cryptocurrencies projects apart from Bitcoin. It might be worth investing in a few if you think they could have future promise.
Coinbase has a program that allows you to learn about various cryptocurrencies and earn free crypto at the same time. My referral link for EOS can be found here coinbase.com/earn.
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