Silver & Gold Smashed And Why it Doesn’t Matter

Last night saw mass liquidations across nearly all assets except the USD, and even then it barely moved rather than rally.  However none got hit as hard as silver which saw nearly 15% falls, the biggest daily drop since the GFC. Both gold and Bitcoin were also off heavily, each by around 5%.  It’s not entirely clear what the catalyst was but likely the combination of Russia announcing it has a vaccine (and the market not caring it’s had just 2 months of trials) and Congress still nowhere near agreement on the next rescue package.  The fickle hands of the Robinhood traders who were heavily in the ETF’s of SLV and GLD on pure momentum could also be a factor.  SLV was sitting at #9 in Robinhood’s top 10 most popular trades.  Many were calling some kind of pull back at some stage in gold and silver in particular given the strength and speed of the rally we’ve recently seen.  One of the more famous gold analysts, Peter Schiff tweeted:

Indeed there is no coincidence that bull markets are named after something that bucks and challenges you to hold on to win in the end.  There are usually clowns heckling you along the way too…

When such big moves happen without any clear catalyst it is a test to ask yourself why you invested in the first place and what has changed.  Often the fundamentals haven’t and it is just the sort of momentum trade we can see now in our new world of Robinhood and large algorithmic traders.  Last night we heard the announcement that the largest independent publicly listed business intelligence company, MicroStrategy, allocated $250m of excess cash reserves to Bitcoin.  The reason articulated is a great reminder of why holding gold, silver and their digital brothers of Bitcoin and Ethereum are unchanged.  From BusinessWire:

““Our investment in Bitcoin is part of our new capital allocation strategy, which seeks to maximize long-term value for our shareholders,” said Michael J. Saylor, CEO, MicroStrategy Incorporated. “This investment reflects our belief that Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash. Since its inception over a decade ago, Bitcoin has emerged as a significant addition to the global financial system, with characteristics that are useful to both individuals and institutions. MicroStrategy has recognized Bitcoin as a legitimate investment asset that can be superior to cash and accordingly has made Bitcoin the principal holding in its treasury reserve strategy.”

Mr. Saylor continued, “MicroStrategy spent months deliberating to determine our capital allocation strategy. Our decision to invest in Bitcoin at this time was driven in part by a confluence of macro factors affecting the economic and business landscape that we believe is creating long-term risks for our corporate treasury program ? risks that should be addressed proactively. Those macro factors include, among other things, the economic and public health crisis precipitated by COVID-19, unprecedented government financial stimulus measures including quantitative easing adopted around the world, and global political and economic uncertainty. We believe that, together, these and other factors may well have a significant depreciating effect on the long-term real value of fiat currencies and many other conventional asset types, including many of the assets traditionally held as part of corporate treasury operations.””

The company has a market cap of $1.31b and proven track record of being ahead the game.

“A leader in the business intelligence space, MicroStrategy has a 30-year history of anticipating technology trends. MicroStrategy was one of the first companies in the enterprise business intelligence software sector. It was a pioneer in Relational Analytics, Web Intelligence, and Mobile Intelligence and has most recently invented HyperIntelligence® – zero click insights that can be embedded in applications to make them smarter, faster, and stronger.”

One thing you can be sure of is they will be unfazed by last night’s price action.

At the time of writing the southern hemisphere markets opened and silver jumped nearly $1 immediately.  Maybe the break in that momentum with the market closed has people reassessing those fundamentals again….