Gold Shine Under Bidenomics

1. Gold Shine Under
Bidenomics
Gold & Bitcoin

2. Points To Be Covered Today:
• About Bidenomics
• US Fiscal Surplus Or Deficit
• Will Bitcoin Replace Gold
• Bitcoin In The Gold Market & Its Price
• Differences Between Bitcoin & Gold
• Gold News & Analysis

3. About Bidenomics
• Bidenomics is a big departure from sound economics. But when reason
sleeps, gold fortunes are born.
• Biden’s triumph in the presidential election does not just mean that a new
man lives in the White House.
• It actually implies a fundamental shift in economic policy. Some
analysts even see Biden’s agenda as a decisive break with neoliberalism
or “Washington consensus”.
• You see, in the old orthodoxy, most economists trusted in markets, argued
for privatization, deregulation, and liberalization.
• Taxes and social benefits should be low and don’t discourage work and
investments.
• The governments should run balanced budgets, avoiding large and
permanent fiscal deficits, while central banks should hike interest rates to
prevent inflation from running out of control.

4. About Bidenomics
• The focus was on scarcity and limited supply.
• The economy was believed to operate generally at potential, so
the key factors to fast economic growth were structural reforms
and adequate supply-side policy to strengthen incentives to
work and invest.
• Governments shouldn’t run fiscal deficits as they could crowd
out private investments, and they shouldn’t stimulate the
demand as it would misallocate resources and could overheat
the economy, leading to inflation.
• The monetary policy was better suited to occasionally
fight economic crises.

5. How Much Has Changed!
• Now, the focus is on slack and the demand side of the economy.
• The growth is held by chronic lack of demand – this is the key tenet of Keynesian
economics, the hypothesis of secular stagnation, and the Modern Monetary Theory – so,
governments and central banks should continuously stimulate the economy through easy
monetary and fiscal policies.
• As real interest rates are low and demand is weak, rising public debt is not a problem.
Inflation is not a problem either; after all, if there is always slack in the economy which
operates below its full potential, there is practically no risk of inflation.
• Indeed, Biden has pushed the American Rescue Plan Act of $1.9 trillion (or about 9%of
the GDP) without presenting any plan of longer-term deficit reduction.
• And additional huge government expenditures are coming with Biden’s infrastructure plan.
• It seems that no one is interested any longer in how the government is going to pay for its
spending and obligations, or in long-term consequences of practically unprecedentedly
large fiscal deficits (see the chart below).
• Interest rates are low, so let’s live like there’s no tomorrow!

6. US Fiscal Surplus Or Deficit

7. US Fiscal Surplus Or Deficit -I
• Another notable example is, of course, the Fed’s new monetary framework. The US central
bank has ultimately disregarded the idea of the Philips curve and the natural rate of
unemployment.
• There is no level of employment that could boost the inflation rate, so there is no need for any
preventive actions.
• What really counts is the actual inflation rate, not the expected one.
• The central bank shouldn’t fight with symmetrical deviations from the economy’s long-term
path determined by technological progress and other supply-side factors any longer, but only
with shortfalls from the full employment.
• So, what does Bidenomics (and Powellomics) imply for the gold market? Well, Biden is not the
first politician who thinks that there are no economic limits to his ideas.
• But the pandemic and the economic crisis, the environment of ultra-low interest rates, and the
fact that the Democratic base has shifted further to the left implies that Bidenomics may
become a radical departure from sound economics.
• However, a crazy idea that “borrow & spend without a limit” is the key to prosperity is
positive for the gold market, as the yellow metal is a safe-haven asset and a hedge against
insane economic policies.

8. US Fiscal Surplus Or Deficit -II
• What is important here is the fact that we have actually tested this approach. In 1960, just
like today, the Keynesian economists who dominated in the mainstream (and politicians
who trusted them) thought that the main task of economic policy is to actively and
permanently stimulate aggregate demand.
• The result was stagflation in the 1970s, as it turned out that economies may overheat as
well.
• Gold shined then, so it should also benefit today from similarly unsound economic
ideas and policies.
• So far, the pace of economic recovery has been fast, while the inflation rate has remained
limited.
• But this may change quickly when people stop trusting that the Fed and the government
will swiftly take action to contain inflation if it breaks out.
• However, given the current mindset and macroeconomic ideas, how probable is it that the
policymakers will accept substantial interest rate hikes, cuts in spending, and probably
also a recession when faced with 1970s-style inflation? Not very likely, indeed.
• Hence, if inflation continues to rise, while the Fed remains ultra-dovish, inflationary
expectations may become unanchored, and inflation may get out of control taking
gold with it on a wild journey north.

9. Will Bitcoin Replace GOld
• Bitcoin’s popularity and price are rising. However, cryptocurrencies
could be seen as complementary, not substitutive to gold.
• What a rally! Unfortunately, I’m not referring to gold, but to Bitcoin.
• As the chart below shows, the price of the first and the biggest of
cryptocurrencies rose to above $60,000 in April 2021 from scratch
(or $124) in October 2013 when the chart starts.
• I wish I had bought more coins in these early years
of cryptocurrencies and held them for longer! More recently, Bitcoin
has skyrocketed almost 1200% from its bottom of $4,945 during the
asset sell-off in March 2020.

10. Bitcoin Prices

11. Bitcoin In The Gold Market Overview
• There are, of course, some similarities between Bitcoin and gold
which make these two assets substitutes to some extent.
• It would be surprising if that wasn’t the case, given the fact that Bitcoin’s
system was designed to mimic the gold standard.
• In particular, there is a cap on the number of bitcoins to make this
cryptocurrency rare just like the yellow metal.
• In other words, the idea is to make its supply inflexible, just as – or even
more – in the gold standard.
• So, both Bitcoin and gold are anti-inflationary currencies whose supply
cannot be arbitrarily changed like in the case of national fiat currencies.
• And both these assets have a libertarian, anti-government flavor – in the
sense that demand for them stems from the lack of confidence in the
government monies.

12. Differences Between Bitcoin & Gold
• Bitcoin is believed to be an alternative anti-fiat asset, it’s actually
also fiat money.
• It’s a private, decentralized, non-governmental currency, but it
doesn’t change the fact that Bitcoin is not backed by anything, and it
has no intrinsic value.
• Of course, value is subjective, but gold has some non-monetary use
(in jewelry or technology), which implies that its price is not likely to
drop to zero in a worst-case scenario in which people cease to see
gold as a monetary asset.
• Unlike the shiny metal, Bitcoin has only monetary value – i.e., you
cannot use it either as a consumer good or as an input in a
production process – so there is no floor below its price (if the
officials try to ban Bitcoin, its price could plunge really deeply).

13. Bitcoin Is Much More Volatile Than Gold
• It might be just a problem of Bitcoin’s young age.
• But it doesn’t change the fact that price declines in the
cryptocurrency are a few times bigger than in the gold market.
• Hence, although – thanks to the network effects and speculative
appeal – Bitcoin offers potential for quicker and larger gains, it’s also
associated with higher downward risks.
• It makes the cryptocurrency an inferior store of value and a safe
haven. So, Bitcoin could be seen rather as a risky asset, not
necessarily a safe haven that goes up together with risk appetite.
• This may explain the recent divergence in cryptocurrencies and gold.

14. What Does It All Mean For The Gold Market?
• Well, it’s true that some money has flowed from gold into Bitcoin and
that some investors may prefer now to treat Bitcoin as a major
alternative asset in their investment portfoli.
• However, such flows and rebalancing of portfolios as we’ve seen
recently are perfectly normal, especially given that Bitcoin is still
benefiting from the network effects, i.e., the accelerating institutional
interest and mainstream acceptance.
• More importantly, there are important differences between gold and
Bitcoin, which imply that the latter won’t replace the yellow metal.
• The correlation coefficient between the weekly prices of these two
assets is only 0.38 percent, so they are really far away from being
perfect substitutes. Also, please take a look at the chart below which
shows their prices in 2019-2021.

15. Gold & Bitcoin Prices

16. Gold & Bitcoin Prices
• As you can see in the last slide, gold reached its peak in early
August, while the rally in the cryptocurrency started in October,
two months later.
• Hence, it should be clear that Bitcoin didn’t cause the plunge in
gold prices.
• We could even hypothesize that gold has undergone (or is
undergoing) a healthy correction, which is still ahead of Bitcoin.
• After all, its price chart looks parabolic, which brings to mind
the possibility of a bubble (although network effects can be
partially responsible for this shape).

17. Gold News & Analysis
• Gold is consolidating . Notwithstanding, XAU/USD stays neutral to bullish while
above the $1857 level, Karen Jones, Team Head FICC Technical Analysis Research
at Commerzbank, reports.
• 2019-2021 support line comes in at $1722
• “Gold’s high of $1916.91 has not been confirmed by the daily RSI and the market
has basically been consolidating ever since.
• The move has held over the two-month uptrend at $1862 and last week’s low at
$1857 and while underpinned here we will continue to favour the topside.”
• Source:
• Gold Forecast, News and Analysis - FXStreet

18. Gold News & Analysis - I
• Gold price looks to extend Tuesday’s losses despite risk-off mood.
• Pre-US CPI repositioning weighs on gold while DXY and yields also drop.
• Gold price is back in the red, having reversed early bounce while keeping Tuesday’s
trading range so far this Wednesday.
• As markets remain in a ‘sell everything mode’ ahead of the much-awaited US CPI data,
gold price is also riding the offer wave, unable to take advantage of the ongoing US-China
tussle and renewed weakness in the US dollar and the Treasury yields.
• Source:

19. Gold Technical Overview

20. Gold Shine Under
Bidenomics
Gold & Bitcoin

21. THANKS FOR LISTENING
Gold & Bitcoin