What will become of cryptocurrencies? What about gold?
Cryptocurrencies and gold: facts, comments and scenarios. The analysis by Alessandro Fugnoli, chief strategist of the Kairos funds
What will become of cryptocurrencies? What about gold? The deflation of cryptocurrencies continues not only in prices but also in the credibility of their model. However, despite the crisis, in many ways self-inflicted, a space will remain. A gray area sheltered from the control of the monetary and fiscal authorities (and of the US Treasury, as regards global transactions in dollars) does not currently have many alternatives to cryptocurrencies. It is significant that in recent days Russia has reopened the possibility of using them for commercial transactions with foreign countries.
As for gold, its day-to-day performance continues to be linked to rate expectations, but at a structural level it is interesting that the central banks of emerging countries, when they have the opportunity, continue to accumulate it. We also point out the latest audacious intellectual provocation by Zoltan Pozsar. If Russia one day decides to charge for its oil in gold, he says, many things could change for everyone. Today a barrel of oil is worth as much as a gram of gold. However, if Russia offered two barrels for one gram instead of one, arbitrage would quickly lead to a doubling of the price of gold, very convenient for those who are building large reserves, such as Russia and China.
What to do on the markets? Usually the most frequently asked question is whether to buy or wait or sell or wait. These days, however, one often hears a somewhat puzzling question: buy or sell? This means that for a large part of the market, there are just as many reasons to enter as there are to exit. This, in turn, leads one to think that the market is in equilibrium.
In confirmation, the SP 500, which has fluctuated between 4300 and 3600 since the Fed started raising rates this year, is now almost exactly in the middle of the range. And he seems to be fine there at the moment. Positioning and sentiment, which had reached particularly negative levels in October, are now balanced.
As far as we can understand today of 2023, this range could be confirmed. The fall in inflation is pushing upwards, the expected slowdown of the economy is pushing downwards. Earnings, which the consensus predicts are stable, don't pull in any particular direction.
The market's lack of desire to move away from its equilibrium point is also due to the slowness of the slowdown. Recall that this is a cooling programmed by central banks, not an accident like 2008 or 2020. This explains the gradualness of the ongoing processes.
There is, of course, the possibility that control over the cycle will slip and that the recession, as Larry Summers has speculated, will start slowly and then pick up speed. If so, it will exit the range downwards. However, if the maneuver proves to be perfectly calibrated and a recession is avoided with inflation brought back to acceptable levels, one could think of an end to 2023 above 4300.
For the moment, there are no elements to point to an exit from the range, at least for the first half of 2023. Easing above 4000 and cautiously accumulating below 3900 remains the underlying indication for the coming months.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/criptovalute-oro-scenari/ on Sun, 11 Dec 2022 06:42:07 +0000.