Pincers
Slower Chinese Liquidity Hits Gold: Slower US Liquidity Hurts Crypto
The two leading monetary inflation hedges—gold bullion and Bitcoin—are now tracing distinctly bearish price patterns. As the chart below shows, Bitcoin remains trapped in a falling channel, pointing to further downside.
Gold, shown here in Chinese Yuan, has also broken below the key RMB30,000/oz level. On these charts alone, a further 20% decline in both assets would not be hard to imagine. That is striking, given the common belief that Central Bank balance sheet expansion should support established monetary inflation hedges. So what is driving the weakness?
The answer is that underlying monetary conditions are tightening. Central banks may not yet be raising policy rates, but that is not the whole story. In the US, a strong economy is drawing liquidity out of financial markets faster than the authorities are putting it back, so the liquidity measures we track are deteriorating. In China, meanwhile, the People’s Bank (PBoC) appears to have turned off the money tap. The Hong Kong headline below captures the shift:
