Wood for Horses; Platinum for Cars

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(Photo courtesy Creative Commons.)

By James Passin

On April 24th, in the year 1184 B.C., when the city of Troy fell to Greek invaders, the Trojans hauled the “gift” left by the Greeks, the great wooden horse, into the walls of Troy. 

Another April 24th, this one in the year 2017, is also the anniversary of the last day that the Bitcoin/gold ratio was under one, a great gift to hard money investors that can overcome a decade of indoctrination against Bitcoin. One way to quantify the relationship between gold and Bitcoin is to compare the ratio of Bitcoin to gold. The recent crash in the BTC/XAU (Bitcoin/Gold) index from 14 to just over three may represent a similar buying opportunity; I note bullish technical divergences in this ratio, and the overall hysterically bearish sentiments towards Bitcoin in general.

With the existence of both exchange-traded and over-the-counter Bitcoin derivatives, covered call strategies may be an excellent strategy to go long while selling the high volatility of Bitcoin, generating an income stream against the long Bitcoin position, while benefiting from the long-term trend of declining volatility in Bitcoin. I have written about the positive implication of the declining trend in Bitcoin’s volatility for the general global acceptance of Bitcoin as a monetary instrument. 

The most important thing for any hard asset investor holding cryptocurrency to remember is to create and religiously adhere to a strategy of securely storing private keys. Do not leave a large cryptocurrency balance on a cryptocurrency exchange or any other “trusted” third party. I prefer to use hardware wallets and “cold storage” to avoid the risk of hackers invading software wallets. Cold storage means storing your private keys offline in a hardware wallet.

The other ratio that I have been following closely is the platinum/palladium ratio. This ratio has just bounced off of a historic low, exceeding the low set during the 2001 palladium bubble. The stage is set for the automotive industry to rotate from palladium and rhodium back into platinum, a more abundant and now radically cheaper metal. The short position in platinum futures held by non-commercial traders remains very high, reflecting the market’s widespread bearishness which is fully reflected in the price of platinum. I just sat in a lunch meeting with a group of some of the world’s most powerful metals traders and commodity-focused hedge fund managers. The consensus negative view on platinum, and bullish view on palladium, reinforces my contrarian view that long platinum remains the better trade. The recent stealth recovery in the platinum price reinforces my bullish view on platinum.

My favorite trade is simply to buy 10-ounce platinum bars at a low premium and store them in a secure location. Ingots and coins with low premiums are attractive, too.

I am feeling a little more constructive on gold and precious metals in general with the Fed taking a more dovish tone and the European Central Bank signaling that it will keep printing money. President Trump is also trying to talk down the dollar, which should help gold, platinum, and anything else price in U.S. dollars. 

Barrick Gold CEO Mark Bristow is an aggressive operator, and it is possible that the emergence of large-scale hostile takeovers in the gold industry is a sign that the gold price may start to push higher. However, the gold price, from a technical perspective, remains range bound, and I cannot persuade myself to make a particularly bullish call on gold for 2019.

I have heard from market participants that selling low-quality About Uncirculated and Mint State double eagle gold coins by central banks in Europe appears to be starting to abate. If this is true, and the trend continues, this could mark the beginning of the end of the compression of premiums in numismatic gold coins. However, there is no transparency in this market, and it may take years or even decades for these premiums to truly recover.

The most dangerous three letters in the English language are now “MMT.” This acronym stands for “Modern Monetary Theory.” The proponents of MMT believe that as long as the State can pay its own debts in its own currency, it can print as much money as it wants without causing inflation. The State only has to impose high levels of taxation to control the economy to prevent inflation. The deranged proselytizers of MMT dress up their radical socialist ideology in chains of meaningless equations to disguise its essence: The fanatical objective of the total expansion of State power and the destruction of individual financial sovereignty. The growing number of elected officials and political candidates that ascribe to MMT should provide an incentive to add to your secured inventories of all of my personal favorites: numismatic gold coins, precious metals, and cryptocurrency.

Famed “daredevil investor” James Passin, Chartered Market Technician, is Executive Chairman of Blockchain Holdings, Ltd. (symbol BCX on the Canadian Securities Exchange), a public company listed in Canada. He provides unique insights into the growing ecosystem of crypto-assets through bcxdata.com.

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