Gold Brightens As Bitcoin Exchange Goes “Dark”

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Today’s AM fix was USD 1,340.00, EUR 975.33 and GBP 803.12 per ounce.                        

Yesterday’s AM fix was USD 1,332.75, EUR 969.48 and GBP 798.53 per ounce.  


Gold rose $2.80 or 0.21% yesterday to $1,340.60/oz. Silver fell $0.15 or 0.68% at $21.86/oz.

Gold has given up early gains and is now lower in all currencies and 0.6% lower in dollars to $1,332.20/oz. Traders may be taking profits today after gold reached 4 month highs. Economic data yesterday raised questions about the strength of the U.S. economy, increasing gold's safe-haven appeal.



Gold in US Dollars - 1 Year (Bloomberg)

Data yesterday showed that U.S. home price gains slowed in December, underscoring the risk of an end to the recent housing recovery, while consumer confidence also fell this month.

Value investors are finding gold attractive at these levels on worries about economic conditions in the United States and also China, which has seen unprecedented growth in corporate and sovereign debt.

Mt. Gox, once the world’s largest and most popular bitcoin exchange, has gone “dark” or offline.

Mt. Gox went offline early yesterday morning. The site made no announcement to users about its shutting down, they were instead met with an empty page. Moreover, Bitcoin has halted cash withdrawals following the departure of its chief executive.

There are allegations that the company is insolvent and that bitcoin buyers have lost over $375 million dollars due to a multi year hacking effort that went unnoticed by the company.

According to a leaked document, the exchange is insolvent after losing 744,408 bitcoins — worth about $375 million at Monday’s trading prices.

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Gold Sovereign and Bitcoin


Reports that hackers may have pilfered more than $375 million in Bitcoin from Mt. Gox prompted companies from San Francisco to London as well as their industry group, the Bitcoin Foundation, to assure Bitcoin users that their funds won’t disappear due to theft or mismanagement.

“This is certainly not the end of Bitcoin,” the foundation said yesterday in a statement. “As our industry matures, we are seeing a second wave of capable, responsible entrepreneurs and investors who are building reliable services for this ecosystem.”

 

The shutdown of Mt. Gox comes after months in which the currency’s price soared and it attracted increased attention from investors and speculators. We cautioned clients that it should not be seen as a store of value and that its potential value was as a means of exchange.

Virtual currencies remain an innovative and increasingly important means of payment. However, claims that bitcoins are safe haven currencies that would compete with gold bullion look increasingly misguided.

The developments are bullish for gold prices as various bitcoin exchanges had captured capital flows from investors and speculators who are skeptical of the current financial and monetary system and many of whom would have previously have bought gold and silver.  Some of this capital is more likely to flow into gold in the coming months.

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