Something Wicked This Way Comes

“Correlation is not causation” is a statement that always makes me chuckle. Apparently, eating cheese and strangling yourself in bed is correlated and thus proves this maxim. I say instead, everyone knows eating cheese creates bad dreams and that thrashing around in bed will increase your chances of misfortune.

Indirect causation is certainly a thing.

So when you see the following it begs all kinds of questions:

Bitcoin is meant to be an uncorrelated asset but when you see it correlate with gold you can be pretty sure that this is not true. Bitcoin is “digital gold” and gold is just plain “gold.”

Bitcoin is so much easier to own, move, buy and sell, and cheaper and easier to keep safe, than gold. Gold however, is much slower, less volatile and tried and tested. They are both havens. So when you see gold and bitcoin rally, something just happened and you will read about it in a few days.

Gold as an asset is difficult. U.S. gold stocks are highly rated; physical gold is hard to buy without paying a huge premium; paper gold remains kind of worrisome. It is no wonder that people looking for shelter would jump straight into bitcoin, which is only a click away.

Any crisis will slingshot both vertically, but the hidden menace that the market is struggling to absorb is galloping inflation. Is it transitory as promised or is it just the beginning?

If the value of money is going to keep falling then all assets will rise. Sadly that won’t be a smooth process because what inflation will do is break the machinery of the economies we are used to and make it hard to actually know if you have actually got richer or just ended up with more worthless zeros on your personal balance sheet.

I am up to my ears in precious metals because it seems to me that the price is wrong. At some point investors and traders will make the effort to vault the barriers of entry into precious metal inflation hedging and then the whole sector will reprice.

I’m a short- and medium-term crypto bear, but if there is one single variable that could truncate the crypto winter it will be inflation…. and it’s coming.

If it is to be inflation that puts a bottom on bitcoin, the best way to be sure will be to look at gold and if it is on the ascendant you could be in luck.

Meanwhile, the market is trying to make its mind up about the future of inflation, which to me seems clear cut. It won’t be a long wait. When gold makes new highs it will be time for people with lots of cash to start running for cover.

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Clem Chambers is the CEO of private investors website ADVFN.com and author of 101 Ways to Pick Stock Market Winners and Trading Cryptocurrencies: A Beginner’s Guide.

Chambers won Journalist of the Year in the Business Market Commentary category in the State Street U.K. Institutional Press Awards in 2018.