Opposites Attract – Gold Can No Longer Ignore Bitcoin
Atlas Pulse Gold Report Issue 99
The US Government holds 261.5 million ounces of gold worth $680 billion and 203,222 Bitcoin worth $18.9 billion. Is that enough to start a strategic reserve? President-Elect Trump thinks it is. The confiscated Bitcoin will no longer be held at the crime bureaus but by the US Treasury, presumably in Fort Knox. Bitcoin and Gold will sit side by side.
Highlights
Digital Gold: Opposites Attract
Technicals: Past Gold Peaks and Corrections
Macro: Real Rates, Dollar
Flows: Why Are the Germans Selling Gold?
BOLD ETF: Balancing Risk
Opposites Attract
Since the end of October, the gold price has fallen by 7% in dollars and 4% in euros as the dollar has surged. While gold is giving back some of this year’s spectacular gains, Bitcoin has taken over. As I have long said, these assets take it in turns, and the baton has been handed back to Bitcoin. The inverse moves between Bitcoin and Gold in November have been remarkable.
Bitcoin and Gold – 10 Days with Gold Inverted
Bitcoin and Gold do not have a perfect negative correlation but a persistent low correlation. That is sometimes positive when the dollar had decisive moves in years such as 2018, 2020, and 2022. The correlation has occasionally been negative, as it is now, but less frequently. The ten-year average correlation was 9%, which is minimal. This is why Bitcoin and gold are such a natural pairing, as holding uncorrelated assets side by side provides natural diversification.
Bitcoin and Gold Correlation Over 26 weeks – Past Decade
The Trump administration is pro-business and pro-fintech, which is why the payments companies have rallied. Alternative money, stablecoins, and cross-border transactions will be made easier under Trump, and capital markets will benefit from less regulation. This means Bitcoin and crypto now have a country they can call home, and it’s no longer El Salvador but the USA.
This is important for the gold market and should not be deemed as a threat. The growth in global equity issuance never killed the bond market; indeed, it thrived. My point here is that in alternative assets, gold is the bond, and Bitcoin is the equity. They sit well together, and as investors realise this, both markets will benefit. The $128 trillion wealth management industry is underweight gold, as I have covered in recent issues. Their exposure to Bitcoin is approximately zero. The Bitcoin and gold partnership has a long way to go.
Technicals – Past Gold Peaks and Corrections
A 7% correction rarely makes the headlines, but this one is event-driven, with much of it coming after the US election was declared. I will dig into why later. In the meantime, gold was up 40% over the past year, but now 29%. The 200-day moving average (200 MA) remains in a strong uptrend, but the short-term trend has broken. Gold was 18% ahead of the 200 MA at the end of the October peak, with just 11% volatility (30-day), which is low. The chart starts at $100, making it easier to gauge the price changes.
Gold – Starting from a Year Before the Peak
The high was 40% over a year, which is a good run for the Gold price. I compare that to previous peaks (if, indeed, this is one).
In 2011, the run-up had been 55% before an 18-month consolidation, followed by a fall in 2013 when real interest rates rose. Gold traded 29% above its 200 MA at the peak and had a volatility of 29%, which is high for Gold.
Gold – Starting from a Year Before the 2011 Peak
Back in 1980, the age of the cassette tape, Gold had risen 260% in the preceding year and was trading 141% above the 200 MA, with volatility of 115%. This is what a gold mania looks like.
Gold – Starting from a Year Before the 1980 Peak
If the high of $2,790 in October 2024 turns out to be a major top, it will be the calmest on record and the one without a frenzy. Gold never has tops like that, which leads me to believe this is a correction within a bull market and not a lasting peak. That said, the coming consolidation could last for some time.
Macro - Rising Real Rates, Strong Dollar
The US election result shocked the markets. We know that because prices have been rejigged in recent days; some higher, some lower. Interest rate swaps in the US and Europe have diverged sharply. Europe will continue to see interest rates fall, while in the US, they will hold firm. The expectation is for a strong economy, which has caused the dollar to surge.
A Strong Dollar
That strong dollar move has been accompanied by a rise in real interest rates since early October, from 1.6% to 2.1%. That alone would justify the correction in the gold price we have recently seen. Bond yields are rising on higher growth expectations, while inflation expectations are rising at a slower pace. This has seen a 0.5% rise in 10-year real rates, which has weighed on gold.
Rates, Inflation and Real Rates
When people say that real rates no longer matter because gold shrugged off the 2022 surge in real rates from -1% to 2.2%, they are mistaken. Gold has been structurally revalued as the world has changed, but gold and real rates have always been uncorrelated and remain so to this day.
That’s important because the gold bear case would require real rates to keep on rising. How far can they go? In late 1999, they touched 4%, and the stockmarket crashed. In 2008, 3% wasn’t much fun either. The last Trump administration, from 2016 to 2020, saw them fall sharply in the second half of his term.
Real Interest Rates – Since 1999
Should real rates start to fall, which they can only do from a high level, then the gold bull market will be back on track.
One important point to consider is this crypto-friendly administration will see Elon Musk become the head of the Department of Government Efficiency (DOGE). This is a government that will be led by the Tech Bros. These are the right-leaning technology companies and their backers who will step up to transform the USA. Musk has pledged to save $2 trillion of annual government spending. Should we believe him? He launched a rocket into space on a shoestring budget and fired 80% of the staff when he took over Twitter. Maybe it’s best not to bet against Musk’s skills in budget restraint.
This is a bold attempt to reduce the escalating cost of government using technology, and we should all hope they succeed because if they do, the rest of the world will have a model to follow. And it surely needs one, especially over here in Europe. Trump might balance the budget, which, for a property guy, would be truly remarkable.
That would mean the US government would reduce the deficit and give hope to the bond market that fiscal prudence is back. Add that to Trump’s geopolitical deal-making, with tariffs replacing missiles, and there could be an outbreak of peace. Wishful thinking, perhaps, but the gold bull narrative has been a hedge against debt and deficits. A strong dollar, higher real rates, a balanced federal budget and an outbreak of peace would not make for a strong gold bull case over the medium term.
While I believe Musk will apply an axe to the state, and a ceasefire in Ukraine seems likely, as indicated by the rally in Ukrainian bonds, you can be sure that a Trump administration would boost the money supply. Trump loves money, and with him around, there will be plenty of it. Remember that Trump’s last term saw the gold price rise by 67%.
Gold and the US Money Supply
The US money supply has already turned up and has a long way to go. Calibrating gold with US M2 since 1973 puts gold at fair value. Where there’s money, there’s gold. It’s best to remain a long-term bull.
Flows - Why are the Germans Selling Gold?
Flows into the gold ETFs have waned, with one million ounces sold this month. It won’t surprise you to learn where they have gone (view our Bitcoin ETF data on BOLD.report).
It reminds us that investors still haven’t committed to this gold bull market, and a top seems unlikely when the trade is not crowded. When looking at the gold ETF sellers, blame the Germans. I have no idea why, but they have sold a million ounces this year. Please write in if you know why.
The Germans Are Selling Gold
BOLD
The 21Shares ByteTree BOLD ETF (BOLD Switzerland), launched in April 2022, is up 77% in dollar terms, against 35% for gold and 133% for Bitcoin. The weights are determined by the volatility over the past year and have averaged approximately 75% Gold and 25% Bitcoin. A 75/25 split ought to mean a 60% return, so the 77% return after fees is a product of the monthly rebalancing transactions. You’re welcome.
Bitcoin, Gold and BOLD - Since ETF Inception
Learn about BOLD and follow the Bitcoin and gold ETF flows on the BOLD.Report website.
Making Gold Tokens Liquid
I spoke with Gareth Randle, CEO of Wrapped Gold Council. Like many before him, he wants to put gold onto the blockchain, except he’s not launching another token but aggregating them to improve liquidity. It’s an interesting concept. Gareth wrote:
“The gold industry has been slow to adapt to digital trends, especially in crypto, with major institutions sticking to traditional methods that limit gold’s online potential. Gold deserves a more prominent role in the digital economy. WRGC is making this vision possible by combining all gold-backed tokens into a single, more liquid asset - wGOLD, unifying the market. This approach enhances liquidity on both sides of transactions, creating a more cohesive and accessible market for investors. Acting as a liquidity aggregator for gold on the blockchain, WRGC leverages decentralised finance (DeFi) to integrate gold into today’s financial ecosystem, unlocking new opportunities and expanding its reach.”
Summary
November has been a wild ride for the gold market. The setback feels much worse than it is, and a consolidation of recent outsized gains is welcome. And who knows, maybe Trump and Musk fall out. Is anyone making odds on that?
Thank you for reading Atlas Pulse. The Gold Dial remains on Bull Market.
Charlie Morris is the Founder and Editor of the Atlas Pulse Gold Report, established in 2012. His pioneering gold valuation model, developed in 2012, was published by the London Mastels Bullion Association (LBMA) and the World Gold Council (WGC). It is widely regarded as a major contribution to understanding the behaviour of the gold price.
We would love to hear your feedback, so please share your thoughts in the comments below or contact Charlie at charlie.morris@bytetree.com. It would really help us if you could like, restack/share this update and subscribe to our Substack. Thank you so much for your support!
If Trump/Musk can do a Milei it would be a massive wake up call to Europe (inc UK). The past year has demonstrated the qualities of BOLD with decent growth and very clear handing the baton moments which completely vindicate your construct of the fund Charlie.