- Gold outperforms Bitcoin
- War adds fuel but the fire was already lit
- GLD: probably the easiest on-ramp
– Carl von Clausewitz
Perhaps the greatest military thinker of all (with the possible exception of Sun Tzu), Carl von Clausewitz knew that war was, in essence, just an extension of politics. I thought of this Clausewitz quote last Friday night when I saw President Trump’s announcement that the United States had begun major combat operations against Iran.
Now, I must say that I am not a fan of war. And as someone who decades ago raised his right hand and swore an oath to protect and defend the Constitution as a member of the U.S. Army, I don’t take war or military action lightly. Yet sometimes, war is necessary.
In the case of Iran, not only do I think war is necessary, but it is decades overdue. The Islamic theocracy kills its own citizens, sponsors terrorism through proxies all around the globe, promotes and funds radical Islamic teachings, and even suborned the murder of author Salman Rushdie for the “crime” of writing a novel.
I think these are reasons alone to wage armed conflict on Iran, but the real reason to do so, as President Trump correctly said, is that Iran must not be allowed to acquire and/or produce a nuclear weapon.
Islamic theocrats in control of apocalyptic weaponry are antithetical to the survival of the human species, full stop.
Stymieing this situation now is in the interest of the entire free world, and that’s why the actions taken are, in my view, both justified and laudable.
Of course, the consequences of this action by the U.S., along with Israel, has understandably caused a lot of angst geopolitically. It’s also ramped up uncertainty in global financial markets. Yet here is something I think you’ll be relieved to hear: unless the situation materially deteriorates, I do not expect it to be a material influence on stocks.
I do, however, think it will be a continued, and potentially material, influence on the safe haven that has proven itself the ultimate store of value for over 5,000 years… gold.
The yellow metal has indeed proven its mettle throughout multiple periods of global conflict, with gold consistently attracting demand during war, although government controls sometimes limited gold’s retail gains.
Gold vs. Bitcoin This Past Year
For example, during World Wars I & II, gold prices were largely fixed by governments to maintain liquidity and settle international payments, which limited gold’s upside. During the Vietnam War, we saw the end of the gold standard in the United States, which allowed prices to rise freely from approximately $35/oz in 1960 to over $600/oz by 1980!
Fast-forward to the Gulf War in 1990, and we saw a sharp, albeit temporary, spike in gold prices from approximately $384 to $403/oz. The price of gold did stabilize rather quickly after that conflict ended, but then again, that conflict also stabilized rather quickly.
So, should we expect a big spike here in gold due to the current conflict in Iran? Well, I do expect the conflict to keep driving money flows into gold, but that is far from the primary reason we’ve seen such a strong golden bid.
More important factors influencing gold’s prices include the falling U.S. dollar, global central banks accumulating gold, the “debasement” trade, sustained inflation and safe-haven money flows. These factors have combined to create the current situation, one that I call… “Gold is the new Bitcoin.”
I know this is accurate, because all we have to do is look at the price of gold vs. the price of Bitcoin over the past year.
When You Widen the Lens…
As you can see, the yellow metal has trounced the “new gold,” proving that the old golden dog has plenty of life left in him.
Interestingly, if we widen our lens and look at gold vs. Bitcoin over the past three years, we see that they’ve roughly delivered the same performance, although gold is still the victor during this extended timeframe.
What this data demonstrates is that gold has now become not just a safe-haven trade, but like Bitcoin, it’s also now become a momentum trade. The only difference between gold and Bitcoin on this front is that the momentum has evaporated from the latter, while it continues to run strong in the former.
So, do you own gold? If you don’t, you probably should. But then the question becomes how best to own gold. Should you own physical gold via gold coins or bullion, or should you own gold via an Exchange Traded Fund (ETF) pegged to the price of the yellow metal? Both ways make sense, but in my view, by far the easier way to take a gold position, with just a few keystrokes in your brokerage account, is via an ETF.
In my Forecasts & Strategies advisory newsletter, we own gold via the SPDR Gold ETF (GLD). This is the benchmark fund that’s pegged to the fortunes of the yellow metal, and those fortunes have indeed been good to us since we added it to our portfolio on March 2, 2020.
Recall that March 2020 was right in the face of the COVID-19 pandemic, a period where safe-haven money flows helped investors through another kind of war-like uncertainty, only this time it wasn’t armed conflict between nations, but rather human conflict with a viral adversary.
Since that March 2020 buy, our GLD position has delivered subscribers a return of over 226%! That is indeed a shiny return, but I think there are plenty of profits to come in the weeks, months and years ahead with gold.
If you have little, or no, gold exposure right now, then I say the time for waiting is over.
Gold is the new Bitcoin, so take up arms and join the war against subpar returns with this 5,000-year-old winner.
Jim Woods
Editor,Forecasts & Strategies
