Gold – The 2020 Gold Rush Is Temporarily Over

Sentiment: Gold – The 2020 Gold Rush Is Temporarily Over

Sentiment Optix for Gold as of August 11th, 2020. Source: Sentimentrader, Gold - The 2020 Gold Rush Is Temporarily Over

Sentiment Optix for Gold as of August 11th, 2020. Source: Sentimentrader

With the sharp rise in gold prices, the euphoria in the precious metals sector had of course increased significantly. Basically, the situation today is a mirror image of August 2018, when the bears were beating prices down to US$1,160 at the height of that summer. The mood was completely down. Fear and a sense of abandonment ruled. It was precisely in this environment that the rally in the gold market began, which today, almost exactly two years later, had produced new all-time highs almost daily and has pushed the price of a troy ounce up by a total of over US$900! Until Monday euphoria and buying panic prevailed. The fear of missing out pushed investors buying gold in blind panic and only driven by emotions.

On this basis, the sentiment barometer Optix identified a mood that has not been seen in the gold market since the big top in 2011. Thus, the sentiment delivers a clear sell signal and urgently warns contrarians to be very patient and cautious.

Seasonality: Gold – The 2020 Gold Rush Is Temporarily Over

Seasonality for Gold in US Election Years as of August 11th, 2020. Source: Seasonax, Gold - The 2020 Gold Rush Is Temporarily Over

Seasonality for Gold in US Election Years as of August 11th, 2020. Source: Seasonax

Usually the gold price finds an important low in the early summer months of June or July and can then rise until September or even October. This year the summer low was reached very early on June 7th at US$1,670. Since then, gold prices have exploded on an unprecedented scale. Statistically, this trend could continue for another one or two months.

However, the presidential elections in the USA are scheduled for 3rd of November. This major event is increasingly casting its shadow and is likely to have a strong influence on the entire public debate and, at least in part, on financial markets as well. Therefore, if one filters out only the years of a US presidential election, the seasonal outlook for the gold market changes considerably. Accordingly, the next three months are likely to be rather difficult on balance and should bring lower prices. Especially the last six weeks before the US elections are likely to be particularly dangerous for the gold price.

Of course, the year 2020 is already an absolute exception, hence seasonality should be treated with caution. In the short term, however, or even into September, there are still minimal green omens. Overall, investors should definitely become very cautious in September at the latest, since sell-offs lasting several weeks before the US elections have a tradition.

Bitcoin/Gold Ratio

Sound Money Bitcoin/Gold-Ratio as of August 8th, 2020. Source:Chaia

Sound Money Bitcoin/Gold-Ratio as of August 8th, 2020. Source: Chaia

Currently, you have to pay 5.89 ounces of gold for one Bitcoin. In other words, a troy ounce of gold currently costs only 0.169 Bitcoin. Since the low point of the corona crash, Bitcoin has been able to outperform the gold price significantly. Since the beginning of May, the ratio has consolidated sideways, primarily between 5.1 and 5.8. Nevertheless, Bitcoin has clearly managed to break out of the huge two and a half year triangle against gold. Thus, in the coming months and especially presumably in the coming years, a strong outperformance of Bitcoin against gold is to be expected.

Bitcoin in grams of Gold, Source: Priced In Gold

Bitcoin in grams of Gold, Source: Priced In Gold

Generally, buying and selling Bitcoin against gold only makes sense to the extent that one balances the allocation in the two asset classes! At least 10% but better 25% of one’s total assets should be invested in precious metals (preferably physically), while in cryptos and especially in Bitcoin, one should hold at least 1% up to 5%. Paul Tudor Jones holds a little less than 2% of his assets in Bitcoin. If you are very familiar with cryptocurrencies and Bitcoin, you can certainly allocate higher percentages to Bitcoin and maybe other Alt-coins on an individual basis. For the average investor, who usually is primarily invested in equities and real estate, 5% in the highly speculative and highly volatile bitcoin is already a lot!

“Opposites compliment. In our dualistic world of Yin and Yang, body and mind, up and down, warm and cold, we are bound by the necessary attraction of opposites. In this sense you can view gold and bitcoin as such a pair of strength. With the physical component of gold and the digital aspect of bitcoin (BTC-USD) you have a complimentary unit of a true safe haven in the 21st century. You want to own both!”– Florian Grummes

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