Gold and Bitcoin to the Moon (w/ Raoul Pal & Peter Brandt)
RAOUL PAL: We've now built a chart that's interesting. Everybody goes to the next two things. Gold, Bitcoin. PETER BRANDT: Yeah, I knew where you're going. I just didn't know what to order. That's a logical order, by the way. When you stop to think about it, yeah, you're taking things in a very logical sequential order that here's how dominoes fall. You have to figure out the base of a pyramid before you figure out the top and that sort of thing, so I think it's very logical. RAOUL PAL: To see with goals with me is this divergence, a lot of technical guidance I trust don't trust this rally, but all the fundamentals would suggest it goes further. The positioning is extreme. I feel nervous and I don't know what to do. I feel a bit trapped. What do you think it is? PETER BRANDT: Well, I'm going to go back, Raoul, and make a point that I've made in writing a number of times, going back to June of last year. In June of last year, we had an upward thrust in the price of gold that completed a massive multiyear chart pattern. That gave a target by the way of 1778 met two days ago. The point I'm making is when we started climbing off the bottom in the middle of last year, June, July, August, people were making the point that the commercials were net record shorts, the specs were net record longs in gold. They're going certainly a tad, can't keep going up because the commercials keep selling it. Well, it was interesting they said that because if you went back into history, actually, there was one other time when the commercials had a large net short position, the specs had a larger net long position and that point in time was just at the very start of $1,000 rally in gold that started basically in I think it was August, September 2009, where gold started a massive move going from 1000 to its eventual high, that had a very similar composition of open interest as we have had during this run up in gold now, so I really don't buy the fact that, oh, my goodness, you've got the commercials stacked up on the short side of gold, then that obviously has to be bearish. Because when you get capitulation by commercials in the market, that is when you get the strongest possible moves is when the commercials are forced to capitulate. They've been forced to capitulate an awful lot already, they may be forced to capitulate further. The shakeout in gold that we had, that faked me out a little bit. It didn't fake out my opinion of gold, what it did is fake out my positioning, it faked out my tactics, it created that havoc to my tactics. RAOUL PAL: I had that. Threw me out a bit, and then I've been scrambling on the backfoot since. PETER BRANDT: I think we'd go higher. We're up here. I think the Elliot guys are all bearish gold, which is usually good because the Elliott guys are usually wrong on everything, although they call those stock market decline pretty well. I just think the path of least resistance is off. We have had some really weird things take place within the basis, basis being price differential between physicals in the nearby future, those are a bit erratic here in the last 30 days or so. They've just been completely whacked out due to deliverables, the position of deliverables against the COMEX contract, but I think gold just continues higher. It's probably going to stair step, it's going to climb a wall of worry, but in my opinion, I think we'd go 1950 and then I have to re-judge it from there. Having said that, I also have to have full disclosure that having really turned into a significant bull in gold in June of last year, I covered half my position two days ago in gold when it hit my 1778 target. I definitely would be willing to replace that position should we get back towards 1700. RAOUL PAL: Final one, Bitcoin. PETER BRANDT: That's one where we may find a disagreement in. I have been-- I'm going to call myself a narrative bull in Bitcoin. You know the Bitcoin story well, and by the way, Raoul, for those who don't know, and I've mentioned it before, you're the one that turned me on to Bitcoin, and I want to thank you for that. That goes way back, that goes way back into 2016. You mentioned it to me in March of 2016. You sent me a chart and said, Peter, what do you think of this chart? I looked at it and go, I've heard about this crazy market. This chart is nuts. You turn me into an instant, one glance at the chart, bull in Bitcoin and of course, we had the big move, which I thought was really interesting because both you and I positioned ourselves very well in Bitcoin. We both took some off in 1000 and then we got the wrath of God from the trolls for a triple your money trade. I never could figure that one out. Nevertheless, the Bitcoin narrative makes sense to me. It makes me want to say, Bitcoin to the moon, $50,000 Bitcoin, $100,000 Bitcoin, but boy, is there a big caveat to that. The cabinet to me is that Bitcoin right now has every reason in the world go up. It's monetary supply, it's global uncertainty, it's all kinds of-- it's a strong gold market. It's a weak stock market. My goodness, if Bitcoin can't go up with what we have as a backdrop now, part of me as a technician wants to look for the shadows in the dark alleyway. I'm going, here's the market that really should be going up and it's not. RAOUL PAL: Look at the larger wedge. There's a large triangle wedge whatever pattern you want to call it. Now, could it go back down to retest the base of that pattern? Possibly. Now, that could be exactly where that would be, but it could be 3000, could be 4000, could be-- it depends where you draw the line, whether it's an upward sloping or flat version. That's possible too. PETER BRANDT: Very possible, and that by the way, there's a lot of people that criticize both you and I, because we periodically change our mind out in the [?]. We'd look at a market and we formulate an idea. You think a lot like I think, Raoul, and that is strong opinions weakly held. When we have opinions with strong opinions, it's necessary to have a strong opinion so we can carry a large enough position that if we're right, it becomes meaningful. When presented with new information, we have to reappraise. There are people who are dogmatic on positions, they'll go to their death with the position without changing their mind. While I'm nervous with Bitcoin, because I feel there are some things I see in the charts that are negative, it's not acting right, I also see the wedge that you see. I call it a symmetrical triangle, goes back to the December of 2017 high then you have the December of '18 lows, then you go up into the June of '19 high and then the break that we've had recently, and you have a huge symmetrical triangle. Should that symmetrical triangle, should we bottom in here, go back down to 4000, 3800 hold, start up, build something on the daily chart, then yes. Yeah, I know it comes across as real weird to people who want to be dogmatic in their thinking, but I have in the back of my mind an interpretation, a labeling of the Bitcoin chart that will take me one way or take me another way. I don't really care which way it is. RAOUL PAL: For me, I just look at that structure, understand the narrative, I look at that huge structure, the big triangle, and I'm like, okay, I usually know how these play out, particularly when I'm pretty confident of the macro and the fundamental and everything else. Now, the question is how does it play out on par? Often, it gut checks you once more than you want to be gut check in a pattern like that. Maybe it goes lower first. Significantly lower, maybe it only goes half as low because then you've got the idea, yeah, it's definitely going to retest, and then it doesn't retest the low. These triangle patterns tend to, as you've said before, they tend to morph in ways that frustrate you, but you just know that you're only operating within the context of a much bigger pattern. You'll have plenty of time to get it right. You can either try and buy it lower down, buy it in the middle, or buy on the breakout. Over the next time horizon, the probability of you being right, and it goes up is pretty high, depending on the time horizon. PETER BRANDT: Well, I think that's right. I pointed out to people like if you want to just have a very, very simplistic, technical approach to trading Bitcoin, just use a simple moving average. I don't know what it is, 14-day, 21-day, 30-day, take your pick, pick your poison because the reality is let's just say I use for timing sometimes an 18-day moving average. If Bitcoin is going to go from wherever to 20,000, 50,000, 100,000, trading it with a simple moving average is like paying a premium for the fire insurance on your home. You don't get your premium back, but what you're assured is if your house burns to the ground, you're covered. I guarantee you one thing, that if Bitcoin goes to $100,000, the 18-day moving average is going to spend most of its time in a profile. It's going to keep a person positioned to the right side of the market. You can just adopt some very, very simple technical indicators to say if I'm wrong and the 18-day moving average is pointing down, I'm not going to own it, or I'm not going to own as much of it, but you just adopt some very, very simple technical indicators that say, this is the insurance premium I'm paying to be long should the market have the increase that it could possibly have. I've always said about Bitcoin, I think there's a 50% chance it goes to 100,000 but I think there's a 50% chance it goes to zero. Within that parameter, how do I define a positive reward to risk profile trade? At Bitcoin at 6700, or wherever it is today, boy, 100,000 versus zero, and then you add some simple technical indicators, all of a sudden, you profile the trade that should be profitable or if not profitable, it's not going to cost you your home.