Tesla has supported the price of Bitcoin, but it can affect gold as well.
The bull market in cryptocurrencies continues. As you can see in the chart below, the price of Bitcoin has recently increased to almost $47,000 (as of February 10). The parabolic rise seems to be disturbing, as such quick rallies often end abruptly.
However, it’s worth noting that the price of Bitcoin has partially jumped because of the increased acceptance of cryptocurrencies as a legitimate form of currency by the established big companies. In particular, Elon Musk, the CEO of Tesla, has recently published a series of tweets that significantly affected the price of Bitcoin, Dogecoin, and other cryptocurrencies.
Maverick Fund was up 49.9% for the first quarter, while Maverick Levered gained 52.5%, and Maverick Long Enhanced gained 1.7%. Maverick Long gained 6.3%, while MFQ Neutral was down 5.1%. Q1 2021 hedge fund letters, conferences and more The first quarter was the Maverick Fund's strongest quarter ever, driven mostly by the performance of Coupang, Read More
Furthermore, Tesla updated its investment policy to include alternative assets as possible investments. In the last 10-k filing to the Securities and Exchange Commission in January 2021, Tesla stated:
In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.
Importantly, these assets also include gold :
As part of the policy, which was duly approved by the Audit Committee of our Board of Directors, we may invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds, and other assets as specified in the future.
This means that Tesla wants to diminish its position in the U.S. dollar and to diversify its cash holdings. In other words, the company lost some of its confidence in the greenback and started to look for alternatives. So, it seems that Musk and other investors are afraid of expansion in public debt , higher inflation , and the dollar’s debasement .
And rightly so! The continued fiscal stimulus will expand the fiscal deficit even further, ballooning the federal debt. With the budget resolution passed last week, only a simple majority will be needed in the Senate to get Biden’s $1.9 trillion package approved, a majority that Democrats have.
Remember also that the U.S. economy added only 49,000 jobs in January , while 227,000 jobs were lost in December (revised down by 87,000!). The poor non-farm payrolls will strengthen the odds of a larger fiscal stimulus and easier fiscal and monetary policies.
Hence, combined with the ultra-dovish monetary policy and a Fed more tolerant to inflation, the upcoming fiscal support could ultimately be a headwind for the dollar. Initially, the prospect of fiscal support caused positive reactions on the financial markets, but as the euphoria passes, investors start to examine the long-term consequences of easy money and the large expansion of government spending. Importantly, the larger the debt, the deeper the debt trap , and the longer the zero interest rates policy will stay with us, as the Fed won’t try to upset the Treasury.
Implications for Gold
What does Tesla’s move imply for the precious metals market? Well, we are not observing the kind of rally in gold that we are currently witnessing in the cryptocurrencies sphere (see the chart below). And – given the size of the gold market – it’s unlikely that Musk & Co. could ignite a mania similar to the one seen in Dogecoin. The gold market is simply too big. Even the silver market could be too large for similar speculative plays – as the failure of the recent attempt of a short squeeze has shown.
However, the update of Tesla’s investment policy is a confirmation of gold as a safe-haven asset and portfolio diversifier . If other big companies follow suit, and we see an actual reallocation of funds from the U.S. dollar towards gold, the price of the yellow metal will get an invigorating electric impulse .
If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!
Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care