Contrarian Investments: Equities, Volatility & Hedging in Gold and Crypto

The price of gold is currently trading around $1500 per troy ounce, up 14.59% over the past 6 months, and 25.72% over the past 1 year. The long-term ‘inverse relationship’ between the gold price, the USD, and the performance of equities markets has its fair share of supporters. Since gold is a dollar-denominated commodity, a strengthening of the USD tends to temper demand for the precious metal, since foreign buyers have to pay more per unit of the currency for gold.

Source: GoldSilver

Investors tend to seek out safe-haven instruments to guard against market downturns. Gold is traditionally thought of as the best bet when equities markets sour. We see evidence of this when we measure the performance of gold and the level of the US Dollar Index (DXY), the volatility index (VIX), and the long-term performance of Wall Street markets and foreign bourses.


Source: Macrotrends Dow to Gold Ratio and S&P to Gold Ratio (from left to right)

Macroeconomic charts such as the S&P 500 to gold ratio indicate how many ounces of gold are required to purchase the S&P 500 during any given month. One can see that these numbers were higher between 1980 and 2000, dropping substantially between 2000 and 2010. The Dow to Gold ratio (pictured above on left) measures the performance of the Dow Jones Industrial Average (DJIA) and the gold price. In July 2019, it required 18.78 troy ounces of gold to purchase the Dow. Likewise, it takes 2.08 ounces of gold to purchase the S&P 500 (pictured above on right).

 

Comparing the Performance of the DJIA, NASDAQ, & Bitcoin

If we examine the performance of the Dow Jones Industrial Average for 2019, it began the year at 23, 247.20, and is currently trading at 26, 292.2, for a gain of 3045 points, or 13.098%. The tech-heavy NASDAQ composite index began 2019 at 6,665.94, and is currently trading at 7,959.14. That translates into a net gain of 1,293.2 points, or 19.40%. Clearly, the correlation between gold’s substantial run of form and the performance of equities markets is not clear all of the time. Neither are gold’s recent gains vis-a-vis the performance of the USD. The US dollar index (DXY) is the weighted measure of the USD against a basket of currencies including the EUR, GBP, SEK, CHY, CAD, and JPY. The US dollar index is currently priced at 97.03, up 0.90% for the year-to-date – again bucking the assumption that gold demand increases when the USD weakens.

 

The current performance of gold is directly attributed to the uncertainty of trade relations between the US and China, and the possibility of tariffs with the European Union. It is worth pointing out that several loose associations have also been formed between gold and contrarian investment options such as cryptocurrency. The price of Bitcoin is currently $11,355 per unit BTC, for an overall market capitalization of $203.159 billion. There are now 17,868,750 BTC in circulation, with a max supply of 21 million BTC. Bitcoin dominates 69.3% of the cryptocurrency market – among its highest ever market saturation rates. There are now some 2440+ cryptocurrencies across 19,828+ markets globally. In 2019 Bitcoin skyrocketed from $3,882 in January to its current price of $11,324. This marks a spectacular turnaround from 2018 when Bitcoin prices had effectively plateaued. Bitcoin’s gain of $7442 for the year-to-date is the equivalent of a 192% appreciation.

 

The Gold Standard of Cryptocurrency for Hedging Against Volatility

While the gold standard certainly paved the way for economic prosperity over the years, it was abandoned to allow fiat currency to exist without gold backing. A new yield-bearing cryptoasset has entered the scene which draws upon the relative strengths of gold as a hedge against volatility in the form of a gold-backed digital currency. A big part of the problem with cryptocurrency is its extreme volatility.

 

Blockchain technologists, financial experts, and cryptocurrency leaders have been seeking a way to build on the appeal of virtual currency assets by stabilizing their pricing mechanisms alongside more traditional investment options. An innovative, new cryptocurrency is preparing for its debut, Kinesis. This gold-backed cryptoasset is directly correlated with the physical supplies of gold and silver.

 

The initial minting offer (IMO) runs from April 2, 2019 through August 29, 2019, and the soft cap is 15,000 KVT and there are 210,000 KVT available for sale, with a total coin supply of 300,000 KVT. The current price of KVT is $1000 per unit, and the offering accepts Tether, Ethereum, Bitcoin, and USD. The current supply of existing crypto-assets is limited in terms of their store of function value, and their medium of exchange function. That’s why there is so much interest in a gold and silver-backed cryptocurrency option like Kinesis.

 

Traders and investors purchasing Kinesis cryptocurrency are actually purchasing real gold and silver which is owned and stored by the company in secure vaults. This gold backed cryptocurrency is not simply a series of ones and zeros on a computer or blockchain network – it consists of real, tangible assets with authentic value. These digitized gold and silver holdings can be transferred over the secure blockchain network, through value transactions and used for multiple purposes.

 

The Kinesis method of investing in gold and silver is entirely unique. For starters, it is not an exchange traded fund, or a stock of a gold company; it is a tangible investment in physical gold or silver. The value of the investment tracks the gold or silver price in real time, however users can access that value in real-time through a debit card and the blockchain network. By providing users with blockchain-style gold bullion, it is quick and easy to realize gains, maintain holdings for appreciation purposes, or use as a medium of exchange. Kinesis is considered by many to be a technologically advanced investment option for those seeking to hedge against inherent stock market volatility, with real gold bullion backing it.

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