The gold market has been a boring place lately as prices cannot break out of the $1,700-$1,800 trading range. And the only thing that can fix that is a stock market correction, said Bloomberg Intelligence senior commodity strategist Mike McGlone.
But even then, the precious metal will have to continue to compete with bitcoin – gold’s biggest nemesis.
“Right now, I view the gold market as a ‘meh’ market. It’s just stuck, and it’s clearly being replaced by digital gold. Every day that goes by, everybody who knows and holds gold understands that their greater risk is not allocating a small portion of that gold into bitcoin. And it’s just getting started,” McGlone told Kitco News.
One bright spot for gold remains an inevitable correction in the stock market, whenever it will be.
“One thing that’s been assumed in virtually every outlook for every market on the planet is the U.S. stock market has to continue going higher. For crude oil to go higher, for copper to go higher, for yields to go higher. To me, that’s the main missing point. If the U.S. stock market stops going higher, even a 10% correction, that means bond yields will plunge, copper and crude will collapse, and gold would probably be the beneficiary. Not right away because risk-off typically is not good for gold initially. But to me, that’s the key thing for gold,” McGlone pointed out.
The stock market will always have a period of under-performance. And the next time that happens, whether that’s a month away or a hundred years away, gold, bitcoin and U.S. long bonds will definitely be the primary beneficiaries.
“That is what the gold bull market needs. But again, the problem is gold is being replaced by bitcoin. You look over things like copper and silver. At least they have the decarbonization and electrification demand going their way,” McGlone said.
The appeal of bitcoin is really hurting gold. In fact, if bitcoin was not stealing attention away from the precious metals, gold would be at $2,300, McGlone said. “I don’t see that going away. I’m not bearish gold, but I’m not extremely bullish either. Gold is put in a good bottom for the year. I’m more bullish on silver. That’s the bottom line.”
And the consensus on the Bloomberg terminal confirms that the gold price outlook is currently directionless. “The consensus on the Bloomberg terminal, which gives you exactly what people are looking for, shows that the median forecast for Q4 2021 is $1,784. For 2022, it is $1,789. And for 2023, it is $1,806. That is pretty darn boring,” McGlone stated.
This is surprising because gold should be the go-to asset in light of the debt-to-GDP ratio, declining U.S. dollar, and all the QE.
This is why McGlone points to bitcoin as stealing gold’s thunder, highlighting that this is not a temporary change but a real paradigm shift.
“When we look back at this year, we are going to see that this year the paradigm shifted. Going forward, there’s good potential that your average investor will be adding bitcoin to sovereign wealth funds, to corporate treasuries, to pension funds. And so what’s next? Central banks.”
Gold’s August record high of above $2,050 an ounce might be the high for a while because of bitcoin’s competition, McGlone added.
“Gold’s nemesis is bitcoin, and it’s really kicking it this year. And the whole world knows it. Bitcoin is transitioning to a risk-off asset,” he said. “Something’s got to make bitcoin die. And I don’t see that happening. It’s a unique time. Flows are going out of gold ETFs and going into anything that tracks bitcoin.”
Many have pointed to inflation as the needed trigger for the gold bull market. But McGlone said that all the price pressures this year will be transitory.
“The main reason that we have inflation is that it’s a snapback from what happened last year in light of the most unprecedented and significant amount of monetary and fiscal stimulus in history. After all that spending, you better get a bounce in inflation, and you better get a bounce in employment. Inflation is completely dependent on a rising stock market. If it drops 10%, all bets are off,” he explained.
McGlone looks at natural gas as the best indicator of inflation over the last 20 years. “It is the best benchmark measure of electricity and heat on the planet. And it’s the same price as it was 30 years ago, below $3 per million Btu.”
If the world ends up seeing true inflation, it will be a monetary situation. “That means gold should do well, but people will still be turning to bitcoin,” he said.