Bitcoin Going Down will not Drag Gold and Silver Down With It

Bitcoin is continuing its ascent to new highs despite diminishing search interest and falling volumes. Also of interest is a reduction in momentum. New highs are only marginally above previous highs, and they are immediately met with selling. The overall impression is that of a stone tossed up into the air. We're nearing the top, and descent is soon to follow.

It remains to be seen if the current pullback will mark the beginning of the end for Bitcoin, but one thing is certain. That day will come, and the question then becomes, what happens to gold and silver as Bitcoin descends back to its fundamental value of zero.

This would be the flipside to my  post about Bitcoin's ascent to new highs, written back in February. My argument then was that Bitcoin cannot keep the price of gold and silver down simply by going up. The reason for this is twofold. First, there are the Bitcoin sellers who're likely to put at least some of their profits into gold and silver. Second, there's the fact that prices are more dependent on money-supply than relative estimates of worth. The current tsunami of newly issued dollars will send all prices higher.

We might draw from this that Bitcoin will never go down by much because of the current monetary insanity enacted by central bankers. However, not even an infinite supply of dollars can mask the fact that Bitcoin has no fundamental value. No-one desperately needs Bitcoin for anything. Faced with a choice between paying for soaring food prices and stacking Bitcoin, the stacker will buy food. There will be too few buyers of Bitcoin to support its price, and the price of Bitcoin will go down.

Based on this logic, we may claim that no-one can eat gold or silver either, so this too will see selling pressure in the face of soaring food prices. However, there's a big difference between Bitcoin and precious metals. Gold and silver have uses in jewellery and industry. There will always be someone out there looking to buy a gold ring for his fiancé, or buy some some silver for solar panels. Furthermore, prices of everyday goods are going up for a reason. The dollar is turning to junk. There's a constant need to push dollar prices higher, and a corresponding need to turn dollar savings into savings of some other kind.

With Bitcoin on its way down, producers of essential goods will turn to something else with their surplus earnings, and that something else is likely to be gold and silver because everybody knows that these metals have fundamental uses. There will always be demand for these metals. 

The result of this will be that prices for basic essentials like food will remain stable, or go down, measured in gold or silver. History has repeatedly shown this to be the case, and will no doubt prove this to be true once more.

Sovereign

By Heritage Auctions for image, Mary Gillick for coin - Newman Numismatic Portal, Public Domain, Link