Merry Christmas to our American friends. Happy Christmas to the rest of the Anglosphere. Felicem natalem Christi to our Latin-speaking audience, and góðr jól to those who are reviving Old Norse as a great language!

Let’s address two themes about the gold price trend that are increasingly in popularity the past few months—as the price of gold has been falling. Blame bitcoin. And blame rising interest rates.

There is no direct mechanism—no arbitrage—that pushes up bitcoin and down gold. As there is, for example, with changes in relative palladium or platinum demand if diesel engines gain or lose market share from gasoline engines.

Nor do we give truck to the idea that the dollar has been pushed from ?1.00 to ?0.000053 (we don’t think even the bitcoin bugs who say it, really believe it). What are you going to believe: a B.S. theory, or your own lying eyes?

There is arguably an indirect bitcoin-gold price connection mechanism. Those who own gold for the price appreciation may be attracted to bitcoin. While gold does not seem to be going up, bitcoin obviously is. If someone wants to make dollars quick, bitcoin sure seems to be a better vehicle to ride than gold.

However, we think bitcoin’s effect on the gold price is likely, if anything, to be in the other direction. For everyone selling gold to buy bitcoin, there are surely two who made big bucks in bitcoin and want to diversify into gold. With the price up so much, many people are sitting on 20X gains (or more). In order for new people to buy, SOMEone has to be selling. We think it is likely the diversification trade. It certainly is not anyone saying to himself, “well now that bitcoin has hit my price target, it is fully valued and I am out.”

Gold would be the logical diversification asset, for those seeking anti-Fed money. Once someone becomes aware of the problem with the dollar, which most bitcoin owners are, he will not become unaware. He will be looking for other alternatives. Gold is not only not a dollar, but it is not the wild ride of bitcoin either. For that portion someone wants to take off the table, gold’s stability is a feature, not a bug. The more that bitcoin rises, the more people have more capital to take off the table.