It is truly a digital age: gold bugs have gone virtual.
I’m talking about Bitcoin, of course. I realize that Bitcoin is not gold and has nothing to do with gold; it is a true cyber currency made of nothing but ones and zeros. But its popularity is driven by the same forces that have caused investors to run to gold over the past decade: fear of inflation and a general mistrust of the global financial system.
Five years from now, I have my doubts as to whether Bitcoin will still be around. In order to be taken seriously, it has to reach that tipping point where it becomes a viable medium of exchange accepted by mainstream retailers and not merely a pet project for ideological anarcho-libertarians and other assorted malcontents. It could happen; but I’m not betting on it. It’s taken more than a decade for Paypal to be accepted at non-internet cash registers, and Paypal is denominated in a recognized currency. I don’t see retailers spending the money to update their payment systems any time soon, and before they do I would see this little fad fizzling out.
But I digress. Today, I have no recommendation to short Bitcoin. As tempting as it is, it’s dangerous to short anything that is in the middle of a parabolic move. (And, alas, I’m not sure if it’s even possible to short Bitcoin at this time, unless there are derivatives I am unaware of.)
Instead, I recommend shorting Bitcoin’s far older predecessor, the barbarous relic itself: gold.
Gold has been in virtual free far since October. In that time period, we’ve seen six months of aggressive QE Infinity from the Federal Reserve, an inconclusive Italian election with the potential to plunge Europe back into crisis, a botched Cyprus bailout that threatened to set off a bank run, and the most aggressive monetary stimulus in modern history coming out of Japan.
If none of these developments can spark interest in gold, then it’s hard to see what will. After a great decade-long run, it appears that the gold bull market has run its course.
Action to take: Short gold. The easiest route is to short the SPDR Gold Trust (NYSE:$GLD), though if you want to throw a little gasoline on the fire, you can instead buy the Proshares Ultra Short Gold ETF (NYSE:$GLL), a leveraged inverse ETF.
Gold is a volatile commodity, and you should be careful when shorting it. I recommend something along the lines of a 10% trailing stop. Within 1-2 years, I expect gold to be trading back in the $1,000-$1,200 range.
Disclaimers: Sizemore Capital currently has no positions in any security mentioned.