The CEO of ADVFN – Europe’s leading website for stocks and shares – told Kitco News that most assets that showed a positive correlation during the 2020 bull run are tending to fall simultaneously.
He spoke about gold and how a „flash crash“ in its markets could leave other assets in a similar bearish phase.
„I received a warning from the market about ten days ago… so I put my cards on the table because I think that it is very likely, not absolutely certain, but too likely that there will be a crash in the markets“.
On the other hand, gold, stocks and Crypto Code have begun to correct downward from their local highs.
„Normally, before a crash, I experience what I call a market malfunction where my portfolio simply does not behave as it should.
Bitcoin has lagged behind gold, especially since the global market routine of March 2020, when both assets crashed simultaneously. Once, the short-term correlation between the crypto currency and the precious metal reached an all-time high of 75 percent this year.
The proximity was mainly due to the growing demand for safer and riskier assets amid a declining US dollar outlook. The Fed’s unprecedented monetary policy, which includes an unlimited bond purchase program and near-zero interest rates, increased the attractiveness of cash and cash-based instruments such as U.S. government bonds.
In anticipation of lower short-term yields, investors decided to reduce their dollar positions in gold, bitcoin, U.S. stocks and other assets.
Bitcoin is 13% below its previous annual high of nearly $12,500. Source: TradingView.com
Nevertheless, the Fed warned last week that it could not continue its expansionary program without further monetary assistance from the US Congress. Its chairman Jerome Powell has called on the House to release the second coronavirus stimulus package.
The aid is at an impasse while the Democrats and Republicans debate its scope.
Economists believe that Congress will not be able to pass the stimulus package before the presidential election in November. With expectations of lower dollar liquidity in the market, demand for the dollar from investors has increased.
There, Chambers sees a „malfunction“.
Conflicting opinions on Bitcoin
Stephen Roach, the former chairman of Morgan Stanley Asia, believes the dollar could plummet by at least 35 percent by the end of 2021. He cites uptrends in foreign currencies and the threat of macroeconomic problems in the U.S. in connection with lower savings and – once again – the Fed’s expansive policy.
„In short, the vise is tightening on a still overvalued dollar,“ says Roach.
The declining dollar analogy points to greater demand for Bitcoin and gold in the near future. Some expect the crypto-currency to reach $20,000 if the dollar continues to fall.