Fri, 07/05/2024 - 12:01
After a year of “will they, won’t they” speculation, it looks like the US regulator is finally ready to deliver a much-awaited rate cut. The consensus now seems to be that it will arrive in September – just in time to help drive risk assets on to new all-time highs in Q4. Following strong fundamental developments with the arrival of spot Bitcoin ETFs and the latest Bitcoin halving, many investors are hoping that BTC will be able to break out of its recent range between $59,000 and $72,000 in the event of another big driver – the defining criteria of which a rate cut would certainly meet. But investors will still have to be wary about how much of the expected gains are already “priced in” and ensure they don’t overstretch themselves.
Down at the other end of the risk spectrum, gold has also had a very successful 2024, so far. After achieving multiple record prices so far in 2024, gold finally reached its third new peak at $2,435 per Troy ounce on May 20 – up from $1,800 in early 2023. Meanwhile gold futures have already gained 13% this year so far. But what will the more risk-friendly monetary policy mean for the yellow metal? Surprisingly enough, it’s not quite as clear-cut as one might think. Stocks and crypto might well become more attractive in a lower-rate environment, but the ongoing geopolitical uncertainty, above-target inflation, and a weaker dollar will preserve gold’s lustre. So, without further ado, let’s look at the cases for and against gold and Bitcoin in the rest of the year and beyond.
Trade Bitcoin CFDs
Following April’s hotly anticipated halving event, Bitcoin has failed to push on to new heights. In fact, Bitcoin dipped around 7% in June. However, analyst Minkyu Woo has opined that sellers “are finally exhausted” and a “relief rally” is soon to begin. It would track historically that the positive price impact of the halving should be delayed slightly. The argument for a nascent rally is further strengthened by rising USD liquidity, a metric in line with which BTC has moved relatively predictably in recent years. Market analyst Cole Garner even went as far as to suggest that this “biggest Fed net liquidity rate-of-change spike in 15 months” could have a tangible short-term impact on BTC price strength. If we then get a firm commitment (and timeline) for the much-discussed autumn rate cut, that could be just the boost BTC needs to break above its recent $73,135 ATH. Would-be investors would be wise to temper their optimism, however, as several potentially negative short-term factors loom. Another sale from a crypto wallet labelled “German Government (BKA)” – this time for $52 million worth of Bitcoin – has sparked suspicions that the German government is selling its vast $2.75 billion BTC holdings. Meanwhile, the holdings of the now defunct Mt. Gox, worth an estimated $9 billion, are expected to enter the market in the coming months. While this isn't necessarily a disaster for BTC, it is likely, at least in the short term, to create an oversupply that will prevent prices from hitting new highs.
Golden daze
As we’ve already touched upon, gold has had quite the last 12 months given its usual slow-and-steady approach to gains. But after rising over 30% in just over a year, many are now rightfully wondering whether the yellow metal has run out of steam – especially since it has failed to revisit its local high of $2,435 reached on 20 May. However, many of the same factors that have been so good for gold recently remain in effect today. For example, the geopolitical situation in the Middle East and Europe continues to deteriorate, while inflation is still not quite under control. Add to that the expected shift towards more dovish monetary policy from the Fed and it’s only more good news for gold. The US dollar has only been attractive to fixed-income investors because of the high interest rates (and thus Treasury bond yields). As these come down following rate cuts by the Fed, it can only mean increased demand for gold over time. As TradeStation’s Head of Brokerage Anthony Rousseau opines: "We are in a multi-year bullish breakout for gold”. If that wasn’t enough, central banks are actively increasing their gold reserves. Beyond the positive impact on prices simply by such large volumes of buying, the resultant increase in net liquidity will support investment in a wide range of assets, including gold.
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