Don't Buy the Bitcoin Rally Hype, Says Gold Bull

Once Bitcoin spiked liked energy levels after a can of Red Bull near the end of 2017, it also came crashing down in 2018, but 2019 is seeing the leading cryptocurrency rise over 150 percent to its current price of just under $8,700. However, don’t believe the hype–says gold bull Peter Schiff of Euro Pacific Asset management.

The dream of crytocurrency billionaires and Italian supercars is as such–pretty soon, people will wake up, according to Schiff.

“A lot of people got suckered into this pump-and-dump scheme because they heard all the stories about young kids taking their Bar Mitzvah money into bitcoin and bought a Lambo,” said Schiff at the 2019 SALT Conference. “Pretty soon, it is going to be stories about people who lost their life savings because they put real money instead of play money into bitcoin.”

Bitcoin purveyors have often referred to the cryptocurrency as the new replacement of gold. In Schiff’s view, that’s not going to happen.

“Central banks are buying gold; they are not buying bitcoin because gold is money,” said Schiff.

“We are in the biggest bubbles that the central banks have ever blown,” he added. “And when it gets popped, the 2008 economic crisis will appear like a Sunday school picnic. Then, people will figure out why gold is important.”

For the Gold Bulls

For those who share the same views as Schiff, bulls can look to gold-backed ETFs like the SPDR Gold Shares (NYSEArca: GLD) and SPDR Gold MiniShares (NYSEArca: GLDM), while short-term traders can also play the gold market through miners via the VanEck Vectors Gold Miners (NYSEArca: GDX), Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEArca: JNUG) and the Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT).

For gold as well as other exposure to commodities for diversification, investors can consider funds like the VanEck Vectors® Real Asset Allocation ETF (NYSEArca: RAAX). RAAX uses a data-driven, rules-based process that leverages over 50 indicators, including technical, macroeconomic and fundamental, commodity price, and sentiment. Using this data, it allocates across 12 individual real asset segments in five broad real asset sectors.

The aforementioned indicators identify the segments with positive expected returns. Using correlation and volatility, an optimization process determines the weight to these segments with the goal of creating a portfolio with maximum diversification while at the same time, reducing risk.

One of the allocations the fund added as of late was opportunities in gold. With the latest announcement by the Federal Reserve that it would continue to keep interest rates in check, this could mean for strength for gold if the dollar weakens.

One for the Gold Bears

For the bears, they can look to the Direxion Daily Gold Miners Bear 2x Shares (NYSEArca: DUST). DUST seeks daily investment results before fees and expenses of 300 percent of the inverse of the daily performance of the NYSE Arca Gold Miners Index. The fund invests in swap agreements, futures contracts, short positions or other financial instruments that, in combination, provide inverse or short leveraged exposure to the index equal to at least 80% of the fund’s net assets.

The index is a modified market capitalization weighted index comprised of publicly traded companies that operate globally in both developed and emerging markets, and are involved primarily in mining for gold and, to a lesser extent, in mining for silver.

Currently, prices for gold could on the brink of fragility, according to some analysts. In particular, the precious metal is having the hardest time trying to break through the $1,300 price ceiling.

“Gold inability to break above $1,300 is an indication that the market is really fragile and I think investors should expect to see lower prices in the near-term,” said Fawad Razaqzada, technical analyst at City Index. “I think you have to continue to play gold to the downside as long as prices are unable to hold sustainable gains above $1,300. On the weekly chart I don’t see any reason to be bullish on gold anytime soon.”

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