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However, it is worth noting that the price of Bitcoin has partially risen due to the increased acceptance of cryptocurrencies as a legitimate form of currency by large established companies. In particular, Elon Musk, the CEO of Tesla, has recently posted a series of tweets that significantly affected the price of Bitcoin, Dogecoin, and other cryptocurrencies.
Additionally, Tesla updated its investment policy to include alternative assets as potential investments. In the last 10-ka filing by the Securities and Exchange Commission in January 2021, Tesla stated:
In January 2021, we updated our investment policy to give us more flexibility to further diversify and maximize returns on our cash that are not required to maintain adequate operating liquidity.
In a bombastic tone, these assets also include gold :
As part of the policy, which was duly approved by the Audit Committee of our Board of Directors, we may invest a portion of such cash in certain alternative reserve assets, including digital assets, gold bars, gold exchange traded funds and others. assets as specified in the future.
This means that Tesla wants to decrease its position in the US dollar and diversify its cash holdings. In other words, the company lost some of its confidence in the dollar and began looking for alternatives. So, It seems that Musk and other investors fear expansion in public debt , higher inflation , and the degradation of the dollar .
That’s right! Continued fiscal stimulus will further expand the fiscal deficit, increasing the federal debt. With the budget resolution passed last week, it will only take a simple majority in the Senate for Biden’s $ 1.9 trillion package to pass, a majority that Democrats have.
Remember also that the US economy added just 49,000 jobs in January, while 227,000 jobs were lost in December (revised down at 87,000!). Poor nonfarm payrolls will strengthen the odds for greater fiscal stimulus and easier fiscal and monetary policies.
Therefore, combined with ultra-moderate monetary policy and a more inflation-tolerant Fed, the next fiscal support could ultimately be a headwind for the dollar. Initially, the prospect of fiscal support sparked positive reactions in financial markets, but as the euphoria wears off, investors are beginning to examine the long-term consequences of easy money and the huge expansion in government spending. Importantly, the higher the debt, the deeper the debt trap and the longer the zero interest rate policy will stay with us, as the Fed will not try to upset the Treasury.
Implications for gold
What does Tesla’s move imply for the precious metals market? Well, we are not looking at the kind of rally in gold that we are currently witnessing in the crypto sphere (see chart below). And, given the size of the gold market, it is unlikely that Musk & Co. will be able to ignite a craze similar to that seen in Dogecoin. The gold market is simply too big. Even the silver market could be too big for similar speculative plays, as the failure of the recent attempt at a small contraction has shown.
