The crisis caused by the coronavirus pandemic will bring deflation: to cover losses on the stock market, large investors will sell gold and btc; gold and bitcoin prices will rise again during the economic recovery, when there will be inflation.
The spotlight on gold and bitcoin comes back on. But it is still early days for a “rally breakout” above the $ 14,000 level reached last summer. “We will have to wait at least for the end of the year”: Mark Rodino, managing director of 21Shares AG (Swiss ETP issuer with underlying cryptocurrencies), believes that with the strong deflationary pressures currently underway, and a very severe economic scenario, it is possible that both asset classes will continue to oscillate in trading range. A bit like what happened to gold in 2009 when, after suffering the crisis of 2008 i (like stocks and bonds), he started a ride that brought prices up to the maximum of July 25, 2011 at $ 1,837.68 per ounce.
Deflation caused by the coronavirus crisis
“Despite the strong liquidity injection from central banks and fiscal stimuli from governments, it is possible that we will see a period of strong deflation before the economy machine starts up again – explains Rodino – And during this time it will be difficult to see a rally of gold and bitcoins“.
Gold could suffer along with the financial markets because, technically, in the event of a new decline in the markets, large investors will have to sell open positions on gold to cover margins on the stock market, as seen in recent weeks.
In fact, when the collapse of the main financial centers due to the coronavirus pandemic began, gold and bitcoin also touched the lows of the year, respectively at $ 1,491.60 per ounce and at $ 4,750. In conjunction with the mini-recovery of the exchanges, then, the yellow metal and the cryptocurrency also started the recovery, rising from the minimum respectively of 24% and about 68%.
Inflation with the economic recovery, then rises for gold and bitcoin
To see a rally of gold and bitcoin, therefore, we will have to wait for the gradual recovery of the economy and the end of the deflationary period. “Once the storm has passed, as the first economic sectors start up again, productivity rates will start to explode – argues Rodino – The speed of the money will start again and it will be at that point that inflation should begin. Only then will the big revaluation begin for gold and bitcoin. When will all this happen? Difficult to make predictions, but almost certainly not before the end of the year”.
A hypothesis that recalls what has already happened in the crisis of 2007-2008, when investors decided to sell everything, including gold, to pay margin calls and reduce leverage. The yellow metal hit a low of $ 732 an ounce in October 2008 before starting a climb that brought prices to nearly $ 1,900.