Gold price at $2,300 if not for bitcoin - Bloomberg Intelligence
(Kitco News) Technological innovation is benefiting many metals but not gold, said Bloomberg Intelligence, advising to pair gold with bitcoin in a portfolio.
So far, the digitalization of money has been benefiting the U.S. dollar and bitcoin while taking away from gold, said Bloomberg Intelligence senior commodity strategist Mike McGlone.
"The metals sector has the greatest potential to continue outperforming most commodities, as we see it, particularly in the longer term. Accelerating trends in decarbonization, electrification and digitalization set metals like copper apart from crude oil, which is being replaced by technology, but gold is getting pulled down that rabbit hole. Money going digital is enhancing the reserve currency value of the dollar and doing the opposite to gold, which is being replaced by Bitcoin," McGlone said on Thursday.
If not for bitcoin, gold could be trading well above $2,000 an ounce, McGlone said, adding that the popular cryptocurrency continues to limit gold's upside potential.
"Holding the April 28 price of copper near $9,800 a ton and yields constant, gold would be closer to $2,300 an ounce instead of about $1,780, to match the 10-year relationship between the copper/gold ratio and bonds," he calculated.
Innovation has not been gold's friend as it has been for metals like copper, the strategist pointed out.
"Gold has reached an inflection point of replacement in investment portfolios by Bitcoin, as we see it. In a world going digital, there may be little to stop the accumulation of the benchmark crypto at the expense of the metal," he said.
McGlone's solution is pairing gold with bitcoin. "When the history of 2021 is written, we expect a primary subject will be the accelerating process of Bitcoin replacing gold in investment portfolios. The metal appears increasingly naked if not paired with Bitcoin, and advancing digitalization is likely to limit price-appreciation potential for gold, trading below $1,800 an ounce," McGlone said.
More specifically, McGlone has been looking at the gold-bitcoin 75/25 index. "Indicating the benefits of diversification and low Bitcoin correlation to most assets, annual metrics show our Gold-Bitcoin 75/25 Index has about the same risk as the stock market. From the start of 2018, when Bitcoin dropped from $17,000, the Gold-Bitcoin 75/25 Index has increased about 110%, which is almost double that of the S&P 500 total return and more than 3x spot gold."
McGlone added that industrial metals should continue to outperform precious metals but warned that copper is at risk of reversion in the second half of the year.
"If the stock market keeps appreciating, industrial metals should continue outperforming precious, but we see an increasing dependence on the rising equity tide as a top risk to commodities."