“Black Tuesday” Leads to Gold Spike: Here’s What’s Next

Matthew Carr By Matthew Carr
Emerging Trends Strategist, The Oxford Club

Metals

On January 16, bitcoin and a wide range of cryptocurrencies were annihilated. Losses of 40% or more were seen across the board.

The day has been dubbed “Black Tuesday” by crypto traders… even though the most hardcore of them are standing by the strategy of continuing to hold.

The crypto market has since recovered from its lows. But the price of bitcoin is still down more than 39.9% year to date as I write this…

Now, I will say this… based on what we saw in January, the strategy to hold does have some merit.

From January 5, 2017, to January 12, 2017, bitcoin fell from a peak of $1,191.10 to a low of $755.76. That was a drop of 36.5%.

From a peak on January 8, 2016, to a low on January 16, 2016, bitcoin tumbled 23%.

And in 2015, bitcoin collapsed 46.5% from a high on January 1 to a low on January 14.

We also saw a similar decline of 23.6% in January 2014.

So there is a trend in place: Bitcoin collapses to start the year before finding a bottom around the middle of the month…

And sometimes it regains momentum to finish out the year.

At the moment, bitcoin is down more than 47% from its $20,000 peak on December 17, 2017.

What we know about bitcoin investors is that they’re overwhelmingly male – 71%. On top of that, the majority – 58% – are between the ages of 18 and 34.

It’s a demographic that tends to feel invulnerable. This is their religion.

With that in mind, we also know that when bitcoin crashes, it causes a spike in gold demand…

I’m guessing it comes from the 42% of bitcoin investors over age 35 who’ve lived through their share of market collapses. Not just the dot-com and the financial crisis. But localized collapses like rare earths, gold, crude and the great commodities bust, emerging markets, graphene, the retail apocalypse, and on and on and on…

On January 16 – as cryptos tumbled – Europe’s largest precious metal and bar outlet, Sharps Pixley, saw gold coin sales increase fivefold.

Ireland’s GoldCore experienced the same thing. It said that its investors have been cashing out of cryptos and buying physical gold for the last three months.

As bitcoin and cryptocurrencies crashed, gold prices moved to a multimonth high…

Now, the SPDR Gold Shares ETF (NYSE: GLD) has risen more than 5% in the past three months. And it’s up 8.6% from its December 12 open.

In 2017, gold had a solid year, increasing 13%. But no one really paid attention to the precious metal’s move, as bitcoin shot up thirteenfold.

The main investment thesis in bitcoin and other cryptos is to hold.

That’ll work… until it doesn’t.

As I mentioned before, bitcoin often stumbles to start the year… and regains momentum to finish out the year.

In 2015, the cryptocurrency increased 90.1%…

In 2016, its price shot up 154.8%…

And in 2017, bitcoin gained a staggering 1,368.9%…

It’s been three years of increasingly larger returns.

The last negative annual return for bitcoin was in 2014, when it tumbled more than 60% after having gained 754.5% from April to the end of November in 2013.

Bitcoin and gold now seemed to be intertwined. And that provides an opportunity.

Gold is one of my assets to watch in 2018.

Demand from China is on the rebound after 10 consecutive quarters of decline. And I think we could see a return in India’s jewelry demand. Plus, if bitcoin continues to struggle in 2018, I expect to see more of that older demographic money slide further into gold… especially if there’s volatility in the equity markets.

As far as the diehard followers go, even another “Black Tuesday” probably won’t shake them to their core…

The rest will take their winnings and park them in a more stable investment – one that has a 7,000-year history. They’ll wait for the next entry point to jump back into crypto.

Good investing,

Matthew