In an unexpected turn of events, gold has hit record highs, reaching an impressive $2,100 in the first trading session of the week. This surge in the yellow metal comes as Bitcoin experiences a bullish run, smashing past the $41,500 mark for the first time since early May 2022.
Bitcoin’s rally, which has been building momentum in recent days, saw the flagship cryptocurrency break above $40,000 early Monday morning, marking a day rise of 4% at the time of writing, according to Binance data. Ethereum, another major player in the cryptocurrency market, is not left behind, currently trading at $2,205, having risen by a similar percentage over the past 24 hours.
Gold’s ascent is attributed to a variety of factors, including the ongoing Israeli-Palestinian conflict, which has heightened demand for safe-haven assets. Additionally, expectations for interest rate cuts have further fueled the precious metal’s rise. Gold traditionally performs well during times of economic and geopolitical uncertainty due to its status as a reliable store of value.
A recent survey by the World Gold Council revealed growing pessimism about the US dollar as a reserve currency, with 24% of central banks expressing their intention to increase their gold reserves over the next 12 months.
Bitcoin’s remarkable surge this year, more than doubling in value, has been particularly pronounced in recent weeks. Investors are speculating about the potential approval of a U.S. exchange-traded fund (ETF) that directly tracks the price of the cryptocurrency. Despite Grayscale’s recent legal victory in the pursuit of a spot ETF, the Securities and Exchange Commission has not signaled an imminent approval.
Federal Reserve Chair Jerome Powell’s recent remarks, suggesting a need for balance between maintaining tight monetary conditions and encouraging a gentle landing for the US economy, have been perceived as less hawkish by the markets. Traders are now pricing in a 90%+ probability that the Fed will hold rates until December and a 60%+ chance of rate cuts by March 2024, with the Fed’s upcoming meeting scheduled for December 12 and 13.
The dynamics between interest rates and precious metals are evident, as increased interest rates tend to reduce demand for non-yielding assets like gold. However, despite relinquishing some intraday gains, gold is holding strong below $2,100, up approximately 0.70% on the day. Analysts suggest that in an overbought daily chart environment, a slight increase in US Treasury bond rates could draw buyers to the US Dollar (USD) and prompt profit-taking among gold bulls.
Nevertheless, the non-yielding yellow metal may continue to benefit from growing predictions that the Federal Reserve is concluding its rate hikes and may shift towards a more accommodative monetary policy in the first half of 2024. The delicate balance between economic indicators and market sentiment will likely shape the trajectory of both precious metals and cryptocurrencies in the coming weeks.