A comparison of analog and digital Gold

The emergence of a new institutional asset class

GN gents,

I’ve been researching mining stocks tonight, since there is a low risk signal in the Gold Miners ETF. This gave me the idea to dissect long term patterns in the Gold chart as well as reviewing the recent history of Gold as a tradeable asset.

Brief history of Gold as a new asset class:

Prior to the 1970s, the Bretton Woods system, established in 1944, pegged the U.S. dollar to gold at a fixed rate of $35 per ounce, and other currencies were pegged to the dollar. This system was designed to create stability in international foreign exchange. However, this also meant that gold was not a freely traded commodity.

A pivotal moment came in 1971 when U.S. President Richard Nixon suspended the direct convertibility of the U.S. dollar to gold. This decision, often referred to as the "Nixon Shock," effectively ended the Bretton Woods system and the gold standard for the United States. This move allowed the price of gold to float freely, paving the way for it to be treated as a tradable asset.

Gold essentially became a new asset class on December 31, 1974, when U.S. President Gerald Ford signed legislation that once again legalized private ownership of gold bullion, coins, and certificates for American citizens after a 41-year ban. This opened the door for individual and institutional investors to hold gold as part of their portfolios.

Coinciding with this, the first gold futures contracts were launched in the United States, with the COMEX in New York quickly becoming the dominant exchange. The introduction of futures trading provided a regulated and liquid market for institutional traders to speculate on the price of gold and to hedge against inflation and currency risk.

Since 1971 Gold had rallied by 419% before becoming widely tradeable, after which it retraced by 48%.

What ensued was a frenzied rush to get exposure to Gold by institutions who were completely sidelined, a story of massive flows launching it up for the next 5 years until the 1980 top, which led to a 20 year bear market in precious metals and a 71% decline in Gold prices.

Bitcoin: Massive flows from institutions

Back to the present, Gold still has potential upside until the end of 2028, in line with digital gold that many of us have come to love and trade like maniacs since the early days… There are interesting parallelisms in Bitcoin to consider here: The Nixon shock is akin to the launch of CME futures, since then an almost 400% rally happened in the following 3.75 years, similar to the 496% rally from 1971 to late 1974.

After that, institutions could get involved with the launch of COMEX futures, and a 5 year rally ensued, similar to the rally since 2023, we are in year #2 of 5 in this historical analogue exercise, making my yearly forecast of a top by the end of 2028 eerily similar to the history of Gold as an asset class in the XX century.

Both Bitcoin and Gold can rally in the long term, and downside risk is quite palatable now: compared to previous years, since tradfi players have been onboarded and are accumulating it at a rapid pace, volatility is a lot less extreme. The last bear market in SPY 0.00%↑ was a 21% fall, which saw $BTC fall by 31%! I honestly have no problem hodling considering a worst case scenario of 30% downside risk in the long term for the next 3 years.

This gives me staying power to try and ride the long term trend rather than freak out about short term volatility and lose my position, unlike previous years.

We used to have excruciating bear markets where Bitcoin would fall by 70-90% from peak to trough, and no long term certainty and much smaller players involved putting a floor on prices, as well as much riskier custody and ecosystem players, which forced me to adopt a very risk averse methodology to ride bull markets but side step bear markets in the most effective way possible.

My followers and people who know me since 2015 can attest to my ability to achieve this goal I would think.

The present scenario is challenging but we need to be able to shake our preconceptions and biases from years prior to institutional involvement and try to ride the yearly trend until its completion.

Let’s zoom out and keep our cool here…

Mining stocks pick:

Back to Gold, I like the idea of owning the fastest horse in the long term, an idea recently popularized by Paul Tudor Jones since he got involved with crypto in 2020, and in the case of Gold and going back to the recent weekly trend signal in Miners, I’ve found a small cap mining stock that fits the bill here.