Not all that glitters is gold

Let’s go with 10 Key Ideas that can be read in 1 minute (and their demonstration):

N1-. Gold behaves as a safe haven in times of crisis.

As demonstrated in this price chart where we see its behaviour since the crisis of the late 80s, the .com crisis of 2000 that ties with the financial crisis of 2008 and the Covid crisis of 2020 that leads us to the current record high.

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Nº2-. Gold buying is increasing, with the main buying group being central banks and other institutions, with an increase of 176%.

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Nº3.- China and Japan buy gold. The US and Europe do not. 

China and Japan are the countries that buy the most gold, and it seems that they will continue to do so. In contrast, Europe and the USA are keeping their reserves unchanged.

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Reservas de Oro de China
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Reservas de oro de EEUU y Europa.

Nº4.- The current financial system is showing signs of alarm with the collapse of three large American banks (even if they are called regional banks) and Credit Suisse.

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Nº5.- The ECB balance sheet is scary.

The ECB Balance Sheet has risen again after several weeks of decline. But don’t be fooled by relative values, it is the absolute value that matters. We are currently at €7,728.6bn, or 59% of the euro zone’s GDP.

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Nº6.- European and American debt goes against GDP, not against gold reserves. 

 In other words, although the balance sheet of the ECB and the Federal Reserve has increased a lot, this increase is based only on their GDP and not on their gold reserves. If your debt increases, outrageously, but your gold reserves remain the same, with what are you going to pay back all this debt?

All this newly accumulated debt cannot be repaid with gold, but with GDP, with future wealth.

Possible signs of economic recession.

Meanwhile, core inflation in the US seems to be starting to ease, although the interest rate ceiling has not been seen. Historically, if we look at previous crises, recession occurs a few months after interest rates first, and inflation a little later, have peaked.

Gold is attacking record highs, and if the break of this ceiling is consolidated, it could move towards levels of 2650-2700 points.

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Nº9.- China does not want American debt. Slow and steady de-dollarisation.

China, the country that holds the most US debt in the world, has been significantly reducing its positions for a decade, in a clear downward trend. De-dollarisation may be a slow and steady process. While we may see the dollar rise in value as a safe haven asset in times of crisis, its long-term trend does not appear to be one of global dominance.

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10.- Bitcoin, like gold, is a store of value and has intrinsic characteristics that make it a very interesting alternative store of value to gold. But beyond the fact that it can be stored, transferred and is more resistant to censorship, one of the most interesting characteristics, in my opinion, is that both stores of value are not very correlated.

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Final conclusion: Dear central bank, diversify your store of value, buy Bitcoin.

So those central banks, investment funds or financial institutions wishing to hedge their risk by seeking shelter in gold as a store of value should start to consider putting some of it in Bitcoin. And this elementary conclusion can generate an inflow of institutional capital to the crypto market, among other reasons because despite the volatility, Bitcoin’s long-term return can be much higher than that of gold.

Yours in crypto and AI