You have a choice as to how to spend your cash.
Of course, there are items you must buy today, like food.
But then, there are assets you can buy today that will hold their value over time.
That thought and financial process is unfolding in gold and Bitcoin markets now.
Let me explain.
The Surge
Gold and Bitcoin are rallying because of their ability to store value over time.
Both assets can act as hedges against inflation and economic instability, given their scarcity properties. Both exist outside of the traditional money-printing system.
That’s despite obvious differences. For example, you can touch gold, but you can’t touch Bitcoin. And gold’s been around for eons, while Bitcoin’s been around for five minutes.
Regular readers know I had predicted Bitcoin prices to hit $75-$100K and gold prices to hit $2,400-$3,000 this year.
I say this not to pat myself on the back but to remind you that the reasons behind these uptrends remain intact. Plus, events around them are unfolding more rapidly.
It’s barely mid-March. Bitcoin already shot to a new high of over $73K before a slight pullback on profit-taking. Gold hit a new record high of $2,187.
What’s behind these recent rallies? That’s what I’ll set out to answer in my next two dispatches.
I’ll dive into five reasons why Bitcoin and gold are hitting records – and will keep doing so.
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Limited Supply = Store of Value
Both gold and Bitcoin have a limited supply. That’s in contrast to fiat currencies, which central banks can print at will and without limitations.
Gold is limited by its complex extraction process from mines. It difficult to find and unearth new supply and there’s only a finite amount under the ground to begin with. You can’t print gold.
Bitcoin has a limited supply of 21 million coins. It was designed to be finite to prevent monetary inflation that plagues fiat currencies that can be infinitely printed.
Limited supply creates scarcity. Scarcity drives value up.
That’s also what makes gold and Bitcoin attractive hedges against inflation. Inflation erodes the value of fiat currencies. Scarcity can drive the value of non-fiat assets up over time.
As we’ve discussed before, the U.S. dollar has lost 99% of its purchasing power since President Nixon abolished the gold standard in 1971.
In contrast, gold has risen in value. In “real” terms (adjusted for inflation), gold’s value is up 634% over the same time. You can see that in the chart below…
This isn’t a past phenomenon. It’s present. And it’s global.
People are buying gold to store value that their own currencies can’t. This isn’t just to accumulate wealth. It’s to survive.
Look at Egypt. People there are buying and selling more gold. From 2022 to 2023, demand for gold coins and bars surged nearly 58%.
That’s because gold holds its value more than their local currency, the Egyptian pound, in the midst of the war in Gaza, soaring inflation, and a dearth in tourism.
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Inflation Is a Persistent Beast
Speaking of soaring inflation, that’s also a factor in the U.S.
The Federal Reserve’s favorite measure of inflation is core PCE. It tracks the rise in prices for goods and services, minus food and fuel.
Core PCE is at 2.8% year-over-year. That’s below its high of 5.5% in 2022. By this summer, core PCE should get close to 2%.
Six months of this “good” data on top of the six months in 2023 should give the Fed more than enough confidence to start cutting rate in June or July.
But as I said on Fox Business last week, people don’t live in a core PCE world that excludes food and gas expenses.
They live in a world where rents, food, utilities, and daily needs are more expensive now than before Covid. They have risen by double-digits.
Paychecks don’t stretch like they used to. People are feeling squeezed.
They are seeking alternative inflation-hedge assets to mitigate these cost increases and preserve wealth.
Assets that hold or rise in value while other expenses are rising become more attractive the longer inflation persists.
Historically, gold has been a go-to investment during times of inflation. It stores or maintains its value, even as other commodities rise in price, too.
Similarly, Bitcoin has shown itself to be an inflation-resistant asset. Like gold, that’s due to its limited supply and diversification properties, which I mentioned above.
On Monday, I’ll dive into three other reasons why both gold and Bitcoin are rallying now.
I’ll show you why the acceleration of these events is combining to push the prices of gold and Bitcoin further upward. So stay tuned for more on that…
In the meantime, I’ve previously discussed the best ways to buy gold and Bitcoin. Catch up on those essays here, here, and here.
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins