Intraday Market Thoughts

Analog Versus Digital Gold

by Adam Button
Dec 11, 2017 23:36

Before we start, Litecoin has just hit a new record at $220, up more than 4000% this year. Gold has a virtually unblemished track record as a store of value over 6000 years but that didn't matter in 2017 as Bitcoin dug into its market. Will it be the same in 2018? The New Zealand dollar was the top performer Monday while the pound lagged for the second day. Australian house price data is up next. There are 10 open trades ahead of this week's busy set of central bank meetings & key US data.

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Analog Versus Digital Gold - Bitcoin Weekly Dec 11 2017 (Chart 1)

The week started off with all eyes on Bitcoin as CBOE had a successful launch. Volume was at 7000 contracts, which is only $119m notional but it certainly can't be called a failure. More importantly, Bitcoin prices climbed above $17000 and were relatively stable (at least by BTC standards). Ultimately, those are all good signs for the near term.

Bad signs, meanwhile, continue to mount in gold. We have no doubt that many gold investors or would-be investors have turned to crypto. At the margins, that means less excitement and buying in precious metals. Anything could change in crypto at a moment's notice but for now, the outflows from gold are considerable and speculative net longs are at 4-month lows.

Technically, the trend is increasingly weak. Last week, gold broke below the October low of $1260 and slid another $12 to $1240 on Monday. The July low of $1200 is a major support level that needs to hold if gold is going to rebound in the months ahead. If not, it could get ugly for the old-fashioned analog store of value.

Looking to the short-term, housing investments have been better than gold for the past five years of the QE era. That's expected to continue in 2018, even as regulators find creative ways to curb speculation. One spot to always watch is Australia where Q3 house prices are due at 0030 GMT. Through Q2, prices were up 10.2% y/y and 1.9% q/q. That's expected to cool to 8.8% y/y and +0.5% q/q. Look for a small reaction in AUD.


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