{"id":37628,"date":"2013-04-17T11:25:45","date_gmt":"2013-04-17T15:25:45","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=37628"},"modified":"2013-04-17T11:25:45","modified_gmt":"2013-04-17T15:25:45","slug":"what-the-gold-crash-and-bitcoin-crash-have-in-common","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/04\/17\/what-the-gold-crash-and-bitcoin-crash-have-in-common\/","title":{"rendered":"What the Gold Crash and Bitcoin Crash Have in Common"},"content":{"rendered":"

By Justice Litle<\/strong><\/p>\n

Gold and virtual currency bitcoin crashed in recent days. The crashes have something in common.<\/p>\n

First, let’s talk about gold…<\/p>\n

The yellow metal plunged by more than $100 per ounce on Monday
\nfollowing talk that Cyprus would be forced to sell gold to pay back its
\ndebts. Although Cyprus is small in the scheme of things, the move
\nsuggests a precedent of forced sales from larger euro-zone countries
\n(such as Portugal, Spain and Italy).<\/p>\n

This comes on the heels of increasingly bearish outlooks from major investment banks such as SocGen and Goldman Sachs.<\/p>\n

Worse, the faster and farther gold falls<\/a>,
\nthe more likely a mass investor exodus becomes, forcing even heavily
\ncommitted hedge fund managers to sell. Fears of a vicious feedback loop
\nthus lead to self-fulfilling prophecy, as investors rush to the exits.<\/p>\n

Gold had already been in an extended downtrend based on the perception that (1) central bankers<\/a>
\nhave won the battle against further financial contagion and (2) a lack
\nof meaningful price inflation on the horizon. (It is hard to get real
\nand sustained inflation when wages are suppressed.)<\/p>\n

Gold has long been billed as the only alternative currency not
\nsubject to a printing press. As such, gold is used by many investors as a
\nform of “crisis insurance” — a sort of credit-default swap for the
\nentire global financial system. The greater the risk to the system the
\nmore desirable gold becomes.<\/p>\n

But now it seems that a continuation of the crisis in the euro zone
\ncould see the market flooded with gold. There are 11,000 tons of the
\nmetal in euro-zone vaults. Gold is a bastion of safety and a shelter of
\nvalue in times of monetary and geopolitical crisis. But what happens if
\ngovernments are forced to dump their gold to pay back debts?<\/p>\n

A major crisis event such as a euro-zone breakup thus becomes an unknown, rather than a positive, for gold.<\/p>\n

Bitcoins crashed too in recent days, albeit more severely. Last week, the value of bitcoins fell by more than 50% in one day.<\/p>\n

Bitcoins have the same “hard to value” problem as gold, but to an even more serious degree. Whereas gold pricing<\/a>
\nhas decades and even centuries of history, coupled with a mature market
\nto buy and sell into, bitcoins are brand-new (relatively speaking) with
\nno intrinsic value benchmark at all.<\/p>\n

In this respect, gold and bitcoins have both the same core virtue and
\nthe same core flaw. Both represent an alternative to government-managed
\nfiat currencies. Both are hard, if not impossible, to assign intrinsic
\nvalue to.<\/p>\n

So does the crash in fiat alternatives mean the central bankers have
\ntruly “won”… and that there will be no challenge to fiat’s reign?<\/p>\n

Hardly. Neither history nor economics argues that.<\/p>\n

It simply means the road to a 21st-century post-fiat world contains
\nmore twists and turns than many expected… so don’t be surprised to see
\nmore serious volatility ahead.<\/p>\n

To be continued…<\/p>\n

Carpe Divitiae,<\/p>\n

Justice<\/p>\n

\n
\n

Disclaimer<\/span><\/span><\/span><\/h3>\n
\n

Article brought to you by Inside Investing Daily. Republish
\nwithout charge. Required: Author attribution, links back to original
\ncontent or www.insideinvestingdaily.com<\/a>. Any investment contains risk. Please see our disclaimer<\/a>.<\/em><\/p>\n

 <\/p>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

By Justice Litle Gold and virtual currency bitcoin crashed in recent days. The crashes have something in common. First, let’s talk about gold… The yellow metal plunged by more than $100 per ounce on Monday following talk that Cyprus would be forced to sell gold to pay back its debts. Although Cyprus is small in … <\/p>\n

Continue reading “What the Gold Crash and Bitcoin Crash Have in Common”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-37628","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/37628","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=37628"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/37628\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=37628"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=37628"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=37628"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}