Hedge Fund CIO Discusses Gold's Recent Performance Compared to Bitcoin
Gold Market Psychology
Eric Peters, CIO of One River Asset Management, recently discussed the psychology that has been governing the gold market for years. He noted that when Bernanke introduced QE during the GFC, many smart investors rushed to hedge themselves against potential massive monetary inflation. Gold was a popular hedge, especially among Baby Boomers who were in their investing prime and felt exposed to the potential devaluation of their life savings.
Gold's Performance Over the Years
Despite the initial rush to invest in gold, the price of the precious metal peaked in the summer of 2011 at over $2500/oz and then turned lower. By 2015, it had fallen roughly 40%, back to the $1400 level it hit in March 2008. This left many Baby Boomers who had invested heavily in gold feeling gutted. However, the Covid stimulus sparked a rally in 2020, giving these investors a chance to sell again near the 2011 highs at $2400.
The Recent Rally in Gold
However, many Baby Boomer bulls eventually lost faith in gold. Some pointed to the EU's confiscation of Russia's foreign reserves following the Ukraine invasion as a reason for their bearishness. But after the last disillusioned bulls sold their final ounce, gold started rallying and has not looked back. According to Peters, this shows what can happen to a market once stale positions have been cleared out.
Gold's Decoupling from Gold ETFs in 2022
Peters also discussed the decoupling of gold from gold ETFs in 2022, just as central banks embarked on a record gold buying spree. He suggested that the confiscation of Russian assets means governments will increasingly diversify their foreign reserves into non-sovereign assets like gold. Furthermore, with China committing to stimulus, every major economic zone appears to be moving away from austerity. In a world of potentially infinite fiat, scarce assets like gold should appreciate.
Bitcoin's Performance Compared to Gold
While gold has appreciated +40% over the past 12 months, Bitcoin has increased +134% over the same period. However, for the past seven months, Bitcoin has been fluctuating in a 30% range, while gold has continued to rise. Peters suggests that this could be due to selling into every market rally, even as clear fundamental catalysts appear.
Bottom Line
The recent performance of gold and Bitcoin provides an interesting case study in market psychology and the impact of global economic events on asset prices. While gold has seen a resurgence after a period of disillusionment among investors, Bitcoin's performance has been more volatile. As governments increasingly diversify their foreign reserves into non-sovereign assets and major economic zones move away from austerity, it will be interesting to see how these trends impact the performance of gold and Bitcoin in the future. What do you think about this analysis? Please share your thoughts and this article with your friends. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.
