Governments, Newton, bitcoin and gold

Monday, 7 August 2017
Melbourne, Australia
By Bernd Struben

  • Buoyant mood
  • An even stronger opposite reaction

For every action, there is an equal and opposite reaction.

Sir Isaac Newton

Born in 1643, Isaac Newton was one of the greatest scientists of his time…if not all time.

He’s best known for his law of universal gravitation. Like me, you may envision his eureka moment arriving after he was hit on the head by an apple. Though the less fanciful version has it that he watched an apple fall to the ground, and was spared a bruised noggin.

Either way, he set to work uncovering why the apple didn’t travel sideways. Or even up.

But Newton’s studies in physics went far beyond gravity. His three laws of motion became the bedrock on which countless other theories are built. Today’s opening quote comes from his third law of motion, ‘For every action, there is an equal and opposite reaction.

I particularly like that one because it’s widely applicable outside of the world of physics.

In the stock market, for example, for every seller there is a buyer. And it’s not just the stock market. Investors are fluid. They react to outside forces.

This is something the government should keep in mind in its endless pursuit of greater revenue.

This year alone that pursuit has seen the introduction of a $6.2 billion tax on the big banks, payable over four years. And it’s seen Bill Shorten put family trusts in his crosshairs, while the Labor party is also recommending that the ‘temporary’ 2% deficit levy become permanent. Oh, and they want to increase the top marginal tax rate to 49.5%…atop the Medicare levy.

And then we have the old Black Economy Taskforce. As you’re likely aware, the taskforce’s goal is to recoup lost tax revenue — estimated at $15 billion per year — from ‘cash economy activities’. They ultimately hope to achieve this by eliminating the use of cash entirely.

With the government’s efforts to ramp up revenue and stifle the anonymity of cash, investors’ opposite reactions are kicking in. And they’re likely to further fuel two assets that remain largely outside of government’s ability to grab.

We’ll get to those right after a look at the markets.

Markets

Over the weekend, the Dow Jones Industrial Average gained 66.71 points, or 0.30%.

The S&P 500 gained 4.67 points, or 0.19%.

In Europe, the Euro Stoxx 50 index closed up 41.04 points, or 1.18%. Meanwhile, the FTSE 100 gained 0.49%, and Germany’s DAX index rose 1.18%.

In Asian markets, Japan’s Nikkei 225 index is up 105.66 points, or 0.53%. China’s CSI 300 is up 0.22%.

In Australia, the S&P/ASX 200 is up 53.20 points, or 0.93%.

On the commodities markets, West Texas Intermediate crude oil is US$49.50 per barrel. Brent crude is US$52.35 per barrel.

Gold is trading for US$1,258.67 (AU$1,584.62) per troy ounce. Silver is US$16.24 (AU$20.44) per troy ounce.

The Aussie dollar is worth 79.43 US cents.

Buoyant mood

One asset that should benefit from tax hikes and government meddling with your cash is gold. That’s not to say gold is likely to be used as a currency anytime soon. But gold is perceived as a haven in times of economic and political turmoil…of which we have plenty.

And with a few notable exceptions — think Franklin D Roosevelt in 1933 — it’s generally considered safe from our leaders’ sticky hands.

As you can see in the graph below, the yellow metal has enjoyed a solid run over the past month.



chart image

Source: Bloomberg
Click to enlarge

The gold price in US dollars is up 3.8% since this time last month. And it’s up 9.6% in 2017.

With that in mind, I wasn’t surprised to run across the following headline in today’s The Australian, ‘Buoyant mood as miners dig for deals’.

The article reports on the annual Diggers and Dealers conference, kicking off in Western Australia today. And it quotes Northern Star executive chairman Bill Beament as saying,

“The gold sector has had a great year, it will be great seeing the financial results that come out of that over the next month. There’ve been big upgrades from Saracen, us and others. People are finding stuff. There’s a couple of big new projects being developed. So for the gold sector it will be a bit more positive.”

Today’s Australian Financial Review (AFR) also sounded off on the yellow metal:

New life is being injected into aging gold projects across Western Australia as the mining sector’s exploration efforts strike success.

In what is shaping as a mini-renaissance for Australia’s gold miners, new discoveries at pre-loved assets are delivering cost-effective production growth for a string of local producers…

Northern Star Resources and Saracen Mineral Holdings both announced significant increases in their gold inventories last week after bumper exploration programs around their operations…

“Now we are looking at a market where the Aussie dollar gold price is closer to $1600 an ounce and the operations that weren’t economic then are much more economic now,” [Argonaut analyst James Wilson said].’

Gold miners, logically, are highly leveraged to the price of gold. Meaning that when the gold price goes up, or costs come down, investors in the right gold miners tend to enjoy far greater returns.

Which is precisely what we’ve seen with Northern Star Resources Ltd [ASX:NST]. Australia’s major gold producer is up 29.7% this calendar year. While Saracen Mineral Holdings Ltd [ASX:SAR] is up 31.0% in that same time.

As Jason Stevenson, our resources guru over at Gold Stock Trader, wrote in Markets & Money last week,

If you’re a gold bug, there’s reason to celebrate. The yellow metal hasn’t looked as good an investment in over six years… I believe now is the time to start preparing for the next gold bull market. If you don’t already own a handful of the best junior gold stocks, you’re doing yourself a disservice in my view.

As Jason alludes to, his focus in Gold Stock Trader are generally the junior miners. Or what he calls ‘penny gold stocks’.

These are the types of stocks that can see their share price rise by not just 31%, but hundreds of percent almost overnight. If, that is — and there’s always an ‘if’ — they can just drill into a rich vein of gold.

Jason spends most of his waking hours hunting down the best ‘penny gold stocks’ on the ASX. Tiny companies he’s convinced could become the next Northern Star Resources. You can find all the details here.

An even stronger opposite reaction

Try as they might, government officials have yet to wrap their heads around the rise of cryptocurrencies. And with a new crypto launching almost daily, they’ve got some catching up to do.

To date, Japan is the only nation to accept any crypto — bitcoin — as legal tender. Australia and most other nations appear to hope this is all just an awkward phase. One that may fade away if they ignore it. Or threaten to regulate it.

But regulating or eliminating cryptos is a lot harder than you might think. Our in-house technology and crypto expert, Sam Volkering, explained to me that governments would essentially need to shut down the internet. ‘And that’s not going to happen!

Short of pulling the plug on the internet, cryptocurrencies are here to stay. And having proven resilient to all attempts of government meddling to date, many early investors are sitting on four digit gains…or more.

Take Bitcoin, for example. Arguably the first and inarguably the best known of the cryptocurrencies. After hitting a record high on Saturday, Bitcoin is now trading at US$3,268.84. That puts its market cap above US$50 billion.

Have a look at the price action below from the past financial year:



chart image

Source: Coindesk
Click to enlarge

If gold has been buoyant, bitcoin’s rise has been nothing short of meteoric.

And that’s despite the crypto undergoing a split last week. Technically called a ‘fork’, this saw a second bitcoin emerge from the first, called ‘Bitcoin Cash’. Bitcoin cash is currently trading for US$243.24.

Sam has kept his readers at Revolutionary Tech Investor up to date on this since the beginning. And readers who followed his advice and stored their coins on a private wallet, rather than an online exchange, can now claim both types of bitcoin.

As the AFR reported last Thursday,

The creation of a second bitcoin asset this week did almost nothing to dilute the price of the original unit, with the value of the new asset instead rocketing skyward, generating almost $US7.5 billion ($9.5 billion) out of thin air.

You can only imagine the sleepless nights this must be causing Australia’s Black Economy Taskforce.

Not so Sam Volkering. He recommended subscribers of Revolutionary Tech Investor get into bitcoin back on 23 November last year. That’s when it was trading for US$741.60. Since then he’s recommended three other cryptocurrencies. And with over 800 cryptos in existence already, he’s far from done.

Yet many of those, if not most, will ‘fizzle and die’, Sam assures me. The key to seriously life changing wealth, then, is identifying the next bitcoin, getting in at ground level, and riding it into the stratosphere.

How do you do that?

Sam has all of the details for you here.

Cheers,
Bernd