Amazing Volatility: Gold, Bitcoins and JGBs Hammered

The volatility of today’s financial markets has simply been breathtaking. 

As US stocks reached new record territory, gold prices had been slammed hard yesterday. Such irony comes in the face of the broadening confiscation of people’s savings by governments

Reports say that proposed liquidations by Cyprus and other crisis stricken euro nations in an attempt to raise funds.

From Reuters:

Gold posted its biggest one-day drop in nearly 2 months on Wednesday after Cyprus was forced to sell most of its gold reserves, but analysts said strong bullion buying by other central banks should underpin the price of the metal.

Investor fears over more gold sales by other debt-stricken euro zone members such as Portugal and Greece sent spot bullion prices down 1.7 percent on Wednesday, within striking distance of a 10-month low…

Cyprus, one of euro zone's smallest economies, has to sell excess gold reserves to raise around 400 million euros (341.2 million pounds) to help finance its part of its bailout, an assessment of Cypriot financing needs prepared by the European Commission showed.

As I have been saying all these liquidations narrative are just really part of the gold suppression scheme.

Analyst Alasdair Macleod points to studies which show that “substantial amounts of gold have been supplied into the markets by Western governments and their central banks” and on the Bank of England’s real holdings of gold as “only 60% of the gold in the Bank’s custody is actually monetary gold”

The genuine intent has been to justify more inflationism, such as the recent advice by the IMF to central bankers, in order  to preserve the untenable political status quo.

The capital flight and yield chasing phenomenon has also battered bitcoins, which has recently gone parabolic

Such selloffs from the recent frothy upswing as shown in the above chart should account for as normal profit taking—consequence from extreme yield chasing activities.

But since bitcoin is a virtual or digital currency and has been a product of decentralized spontaneous market order via technological innovations, they are likely subject to volatility from technology diffusion cycle or the S-Curve.

Unless structural deficiencies of the system will be exposed or if government successfully hacks into the system to adulterate, sabotage or control it, then diffusion cycle means that the bitcoin’s adaption will take time. The chart above demonstrates of the technology diffusion process or cycle.

So current bitcoin's volatility could be a symptom of the resistance to change from the marketplace or even attacks from mainstream, aside from of course, the outcome from intensive yield chasing brought about by distortions from financial repression.

And I would further add that so-called boom from Kuroda’s doubling of monetary base by 2014 has not been smooth sailing as seen by apologists. 

Japanese Government Bonds or JGBs have also been plagued by sharp gyrations.

JGBs have seen a sharp spike in yields over the last few days following an earlier boom. (charts from Bloomberg)

While I expect the bond boom to continue over the interim, eventually the BoJ's massive inflationism will force up interest rates that will make Japan's unwieldy debt loads susceptible to a crisis.

 

Such steep fluctuations reveal how global financial markets have been operating in a very treacherous environment.