by Bryan Perry

October 19, 2021

The record-setting rally in Bitcoin and other cryptocurrencies is being attributed to the first Bitcoin futures ETF (BITO) market, brought by ProShares. There is definitely some pricing correlation to this new ETF, but on a wider scale, there is more going on that I believe is not getting enough coverage.

As for Gold, there are certain developments underway that should be putting a bullish bid under gold, but the notion of cryptos being more accepted as an inflation hedge and ready currency for everyday purchases is taking hold and tamping down interest in precious metals. Try spending gold coins at the mall. You can’t. But consumers can “shop till they drop” with Bitcoin through a PayPal account.

You can buy more things than ever with cryptocurrency these days, from video games to new furniture. Consumers can use bitcoin to purchase gift cards from services like eGifter, or Gyft and then redeem them at mass marketers like Amazon, Home Depot, BestBuy, and hundreds of other popular retailers.

As these inroads for Bitcoin cannot be ignored or denied, the most powerful banker in the world, Jamie Dimon, CEO of JP Morgan Chase, claims cryptocurrency is “worthless” and is the financing mechanism for ransomware and a huge factor in the global drug trade, weapons trade, human trafficking, and a host of other nefarious activities on the dark web. He is right about the evils of cryptocurrencies, but to date, he is quite wrong about those new currencies being worthless in other realms.

China’s central bank has announced that all transactions of cryptocurrencies are illegal there, effectively banning digital tokens such as Bitcoin. “Virtual currency-related business activities are illegal financial activities,” said the People’s Bank of China, saying they “seriously endanger the safety of people’s assets.” Clearly, China’s governing party is doing all it can to stem the flow of capital out of its financial system.

Aside from these aspects of why cryptos are trading higher recently, how about what’s occurring with the breaking down of some of the major global currencies – namely the euro and the yen. The three-year chart of the euro shows that continental currency breaking key support levels and heading back down to where it traded during the panic lows of the COVID-19 outbreak in the March-April 2020 timeframe.

Euro Trust Currency Shares Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The three-year yen chart is more disturbing, as it is knifing through support going back to early 2019.

Yen Trust Currency Shares Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

For 2021, Europe’s debt-to-GDP ratio will top 100%. Japan’s ratio will approach 300%, and China’s will exceed 270%, while the U.S. is set to finish 2021 at 130%. The Fed’s balance sheet is near $9 trillion.

Federal Debt as Percent of Gross Domestic Product Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

One has to wonder if these mountains of debt in major economies can ever be repaid, or if the currency vigilantes may have a legitimate case that the central banks, in conjunction with the corresponding ruling governments, will monetize the debt and simply print enough currency to retire debt in part or fully.

History would indicate that most underlying currencies depreciate in value, and I suspect the weakness seen in the euro and the yen might be due to speculation that central bank monetization is coming.

How to Invest in Precious Metals

Much of the news investors receive daily surrounds the topic of inflation and how to hedge against it in the form of either liquid or non-liquid assets. Precious metals have helped investors preserve their purchasing power for centuries. They cannot be printed out of thin air like fiat money.

Investors often rush toward gold in times of crisis, making it the go-to safe haven asset. Silver is also a store of value and a hedge against inflation. At the same time, it is a “hybrid” metal, since it is also widely used as an industrial metal, so it could also outperform in a high growth, high inflation environment.

The most direct way to play precious metals is to own bullion, but that can be difficult and expensive. An easier method is to invest in large mining companies. The VanEck Gold Miners ETF (GDX) is one way to cast a net over the sector to avoid single stock risk, of which there is plenty in the gold mining industry.

Gold mining stocks have a solid history of outperforming gold on the upside as well as the downside. Gold hit an all-time high of $2,067 on August 7, 2020, and is down about 14% from that level, trading at $1,769 per troy ounce as of last Friday. Shares of GDX are down 28% during the same period, closing Friday at $32.50. The top 10 holdings in GDX account for just over 62% of total assets.

Top Ten Gold Mining Stocks Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

From the 15-year chart, below, GDX is sitting on a key trendline that makes for some consideration at a time when cryptos have taken the spotlight from gold and silver.

Vaneck Gold Miners Exchange Traded Fund Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

It may be valuable to let history be a guide and position some precious metals and/or mining stocks, as cryptocurrencies could face some government pushback and major developed currencies could weaken further as central banks move to monetize debt loads that might prove unsustainable. An allocation to gold might not seem very sexy at the moment, but when it comes back into fashion, it will shine brightly.

Navellier & Associates owns Amazon.com (AMZN), Home Depot Inc. (HD), Jpmorgan Chase & Co. (JPM),  Newmont Mining Corp. (NEM), Barrick Gold Corp. (GOLD), Franco Nevada Corp (FNV), Kirkland Lake Gold Ltd. (KL), , in managed accounts. We do not own Best Buy Co., Inc. (BBY), Wheaton Precious Metals Corp. (WPM), Newcrest Mining Limited (NCM.AX), Agnico Eagle Mines Limited (AEM), Northern Star Resources Limited (NST.AX), Kinross Gold Corporation (K.TO), Gold Fields Limited (GFI.JO).  Bryan Perry does not own Amazon.com (AMZN), Home Depot Inc. (HD), Jpmorgan Chase & Co. (JPM),  Newmont Mining Corp. (NEM), Barrick Gold Corp. (GOLD), Franco Nevada Corp (FNV), Kirkland Lake Gold Ltd. (KL), Best Buy Co., Inc. (BBY), Wheaton Precious Metals Corp. (WPM), Newcrest Mining Limited (NCM.AX), Agnico Eagle Mines Limited (AEM), Northern Star Resources Limited (NST.AX), Kinross Gold Corporation (K.TO), Gold Fields Limited (GFI.JO) personally.

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

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Bryan Perry

Bryan Perry
SENIOR DIRECTOR

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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