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Why Keep Buying? Gold and Cryptos, assets worth holding

Commentaries & Views

The market data from the USA has been consistently putting pressure on the gold price and has forced it to come off the January highs by as much 8%. This is significant basis this small window, but it may be an opportunity to add on more as the short-term data though positive is less than stellar. The Fed’s battle with the inflation they created is far from over and yet the interest rate hike to a 4.5% Fed Fund rate may not be the top. Payroll numbers are up but that does not have any adjustment for those working two to three jobs to get by. Consumer Price Index appears to have reached a limit, but statistics are indicating that prices will remain at the highest levels for longer than hoped for. This will keep households pressed for cash.

The Federal Reserve is stuck between a rock and a hard place. The politicians want them to do more so that they appear to be proactively trying to help its citizens. Meanwhile the full repercussions of its actions have yet to be fully incorporated into the economic environment. The US national debt has risen to 2.75 times the size of the economy. There is no doubt that this could be part of the impetus for Central Banks around the world adding another 31 tons of gold reserves and the likelihood that this trend will continue.

The concern for investors and anyone holding cash is what will be the long-term effect on the economy and whether the rate increases will drive the US into another recession? Any additional Fed hikes will risk creating a much more unstable environment. In this case, equities are not safe and hence a major reason to continue to add gold as hedge against future declines remains imperative.

Yesterday, the big news was that Silvergate a major crypto bank liquidity provider may have to declare bankruptcy. They unfortunately were also caught up in the FTX debacle and this has tarnished their name leading many investors to begin pulling their assets. It certainly did not help that JP Morgan is helping push them in this direction by downgrading their stock to "underweight".

Of course, this is not good market news for the crypto space as it is recovering from the FTX crisis. However, I posit that the crisis was in fact good for the Crypto space. Why? Simply because it woke the investors up and they began to learn exactly what is Bitcoin, Ethereum and other Crypto assets. They are now doing their homework instead of playing it like a horserace and investing in the one with coolest name. By gaining a real understanding of the space, we now have a greater depth of informed investors and the shock of a failing bank no longer is a major concern if they are holding their assets in a secure wallet.

It does not take much for the sensationalist press to jump on any bad news and try to intimate that because a major crypto bank fails that this would be the demise of the crypto markets. In a Reuters Breakingviews commentary Anita Ramaswamy did exactly that. This begs the question, if that is so, why has not the dollar yet collapsed.? The USA has been full of bankruptcies and should have had more during the great recession of 2008. Additionally, the FTX collapse is not a new Ponzi scheme endemic to only cryptos, it has been part of the capitalist system for decades. Simply put it the US Dollar does not fail due to government intervention.

However, the beauty of truly decentralized cryptocurrency like Bitcoin is it does not need intervention. No number of bankruptcies will endanger the amount in existence and its market value which is determined by a truly free market discovery cannot be controlled by any governmental body. Unlike the FIAT currencies who survive only through market manipulation by the Central Bank system and their empowering governments.
Bitcoin and decentralized Crypto currencies are here to stay and their adoption is coming, no matter what the media or Central Banks wants to propagate. Dear Anita, you can hold on to your dollars over the long run. In 20 years, I believe you will wish you had bought as much of this "monopoly money" as you could afford.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.