Investors will get back down to business this week, following the Thanksgiving Holiday shortened trading week. Trading may begin to slow down in the coming weeks, as the holidays and year-end approach.

 

If you have been following the gold market in recent months, you have likely also been seeing considerable coverage of the popular cryptocurrency, Bitcoin. In fact, some analysts have even begun comparing the digital currency to gold, and some have suggested that Bitcoin and similar digital currencies are the wave of the monetary future.

 

With prices continuing to rise and reaching levels near $10,000, this really comes as no surprise.

 

Talk about putting the cart before the horse…Given the extensive coverage surrounding these products and numerous comparisons to gold and other assets, it seemingly makes sense to try to put such investments into perspective.

 

Start by considering this: Gold has been considered a reliable store of wealth and value not for years, decades, or even centuries, but for thousands of years. The yellow metal is recognized and valued all over the globe, and can be used as a medium of exchange anywhere on the planet.

 

Bitcoin and other cryptocurrencies, on the other hand, have only gotten started in the last decade and arguably still have a lot to prove. They may be vulnerable to cybercriminals, programming errors and other issues. Although some merchants have begun accepting these products as a means of payment, widespread use of digital currencies is far from a reality, and numerous challenges will stand in the way of these products becoming more mainstream.

 

Now, let’s talk about bubbles for a moment. A bubble, as defined by Investopedia, is “An economic cycle characterized by rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior.”

 

Could such a definition fit the current cryptocurrency rage? You be the judge…

 

Others might define a bubble as an asset that has been inflated by speculators, and has not been purchased as a store of value. How many people that buy Bitcoin or other cryptocurrencies plan to later sell at a profit? How many believe they will sell at a large profit sometime in the near future? How many plan to simply buy and hold for years or decades to come?

 

How about this: Can cryptocurrencies provide a hedge against inflation? How about deflation? What about declining fiat currency values? Could they be used to purchase food, water or fuel in the event of a major crises? What about a massive attack on the global internet infrastructure?

 

It is very likely that the Bitcoin and cryptocurrency rage could continue, until it doesn’t. The bubble will get bigger, bigger and even bigger until the day it eventually does what all bubbles do: Pops and leaves a ton of investors wondering what just happened.

 

You worked hard for your investment dollars, use them wisely. If you are looking to add diversity to your portfolio with an asset class that may provide a hedge against a number of geopolitical and economic issues while also having the potential for significantly higher prices, gold is an obvious choice.

 

If you want to speculate on rising prices in an asset class that has no significant history or inherent value, then Bitcoin may be a great bet.

 

You make the choice. But if you decide to speculate, make sure you do so with capital you can afford to lose. 

The gold market will continue to monitor Washington this week, as the divergence between House and Senate tax bills seems to be widening. Major tax reforms were an area of focus for the Trump campaign, and a year after Trump was elected President he is trying to make good on that campaign promise.

 

The fight for tax reform is not going to be easy, as disagreements remain on some major issues. In addition, implementation of key parts of any such legislation may need to be phased in rather than being put into place with immediate effect. If the various parties involved are not able to move closer to a deal, or if it appears that any deal may take more time than originally anticipated, it could potentially weigh heavily on the dollar while providing gold a boost. Stock markets could feel some heat from further delays as well, and any signs of stocks topping out could also be bullish for gold and other perceived safe haven assets.

 

Now that President Trump has appointed Jerome Powell to be the next Fed Chair, markets will be looking for any clues on the central bank’s plans regarding monetary policy. Although Powell is widely considered to be someone who will not rock the boat, it remains unclear if he may bring any significant changes in opinion to the central bank. Investors may pay close attention to this week’s inflation data, as the latest readings on both the Producer Price Index and Consumer Price Index are set for release.

 

Consensus estimates are looking for a rise of .1% in month-over-month consumer prices, with the core reading rising .2% on the month. Year-over-year core CPI is expected to remain at 1.7%. Assuming the inflation data is in line with estimates, expectations for monetary policy are likely to remain unchanged. Any upside surprises, however, could potentially fuel speculation about a more aggressive Fed and a rethinking of current rate expectations.

 

For now, the gold market may remain range-bound in the absence of any fresh, bullish catalyst. The market has been moving sideways for some time, with both the bulls and the bears failing to make any significant headway. The longer the market remains range-bound, however, the more substantial any breakout could be.

 

Although numerous issues may potentially favor an upside breakout, the gold bulls may have more work to do before a sustainable upside move can take place. Ongoing all-time highs in stocks and robust appetite for risk continue to be major hurdles for higher gold, and it may very well take a significant stock market crash or decisive reversal in equities to fuel a substantial rally in the yellow metal. Given the age of the bull market and the likelihood of the next recession coming down the pike, meaningful downward pressure in stocks could come sooner rather than later.

 

In the meantime, the gold bulls may simply remain content buying any significant dips in price as they patiently await the next cyclical bull market getting started.