INTRO
Fiat alternatives, gold and bitcoin, continue to mark new highs, and our latest theory centers around an asset allocation reweighting – higher, of course. While it may seem obvious to say prices are rising because more people are buying, the real question is why.
We’ve been watching fiat alternatives closely with our lucky #COTY a year ago. We now have a fresh perspective — with a solid catalyst, confirming action, and an emotional cherry on top.
AWARENESS
De-dollarization is a thing, and it makes perfect sense. While there are many reasons for people, companies, and countries to shift away from the dollar, we are focused here on retail. The central bank buying is well documented:
What is less obvious is what the large population of retail investors are doing. An awakening is taking place, and it is a process. It starts slowly, as most every textbook, teacher, and pundit forgot to teach us about currency diversification. As a result, the majority of retail investors are overly exposed to their home currency. Currency diversification is barely discussed, even in financial circles.
THE CATALYST
Shortly after the Ukraine/Russia conflict began, several governments, including the US, Australia, Japan, and the EU, decided to freeze Russian sovereign reserves. This bipartisan decision was introduced in March 2022 and effectively locked-up $300 million in Russian assets.
The freeze was a very loud shot heard around the world: the epitome of currency weaponization; more like a school-yard bully than diplomacy. The freeze sent a lot of people back to the drawing board to reflect on their own exposure and security.
THE ACTION
As night follows day, a fresh bull market started in gold. A low was set in September 2022, and gold prices haven’t looked back. Regardless of the dollar’s movement, inflation’s rise and pullback, or the shifting tides in GDP, unemployment, and rates — gold marched straight up.
One can argue that the gold rally is gaining speed, and there is a very good reason for that. There is just one thing that could be worse than a freeze, and that’s a seize:
People see what is happening, and they are voting with their assets: moving into gold on a global scale. Recent asset allocation data shows that precious metals make up only a small portion of a “typical” portfolio, which leaves plenty of room for this asymmetric bet.
GOING ROGUE & CLIENT TURNOVER
The retail buyers have several options when it comes to owning gold, and many of these avenues do not involve their advisor. Both the paper futures markets and the physical markets can be accessed without an advisor. It’s worth noting that advisors are incentivized to not “allocate away”, making the decision and process of investing in gold that much slower.
As clients shop around for precious metals, they may stumble across opportunities in alternative investments, hard assets, other currencies, or a number of other ideas. They may even find a new advisor. We connect a couple of dots and conclude that precious metals can act as a gateway investment away from the hyper-popular 60/40 portfolio.
DON’T FORGET ABOUT BITCOIN
It’s no coincidence the BTC rally kicked off alongside gold in the latter half of 2022. The freeze was on, and BTC and gold got the memo.
CONCLUSION
Everything we say about gold applies to silver – just triple the chaos and volatility. Silver is a different beast, and we’ve shared a deeper dive with a fun hypothesis in A Silver Heist.
The shift into fiat alternatives has a major catalyst with long-ranging implications. Money systems change. Fiat alternatives are starting with a very low baseline, as they are not well represented in most retail portfolios, including those of high-net-worth clients. Because it is retail, we know the power of FOMO (Fear of Missing Out): the buyers live higher – strong upward trends tend to pull in more buyers, which exaggerates the price movement. The prices are moving in slow motion now, as volatility is unimaginatively low.
The fiat alternative rally is in motion — with emotional upside convexity as the cherry on top.
This steady climb, fueled by growing awareness and shifting portfolios could turn a quiet trend into something much bigger.
Kinda like some Slo-mo FOMO.
