Gold prices have reached a new historical peak, driven by expectations of a Federal Reserve rate cut and rising safe-haven demand. As of today, gold prices have surged to $2,586.16 per ounce, closing at $2,578.71, marking a 0.78% daily increase. This week alone, gold has climbed over $80 (or 2.8%), achieving the strongest weekly performance since 2020.
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Gold's upward trajectory has sparked market speculation that the precious metal might break the $3,000 mark in the near future. Analysts from Citi Bank suggest that ongoing monetary easing by major central banks and uncertainties surrounding the U.S. presidential election could drive gold prices above $3,000 next year.
On Thursday, the European Central Bank (ECB) cut interest rates as expected, further fuelling predictions that the Federal Reserve might follow suit. The latest data from FedWatch shows a 50% chance for a 25 basis points or 50 basis points cut by the Fed on September 18. If realised, this would be the Fed’s first rate cut since 2020.
Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, thereby increasing its attractiveness. Additionally, falling rates tend to diminish the appeal of fixed-income assets like bonds, making gold a more appealing investment option.
According to analysts from Deutsche Bank:
“The market still anticipates the Fed will cut rates by about 100 basis points by the end of the year. Therefore, with aggressive rate cut expectations in the coming months, gold prices may continue to rise.”
Gold’s strong performance is also bolstered by a weakening dollar and heightened safe-haven demand. Recently, the USD/JPY exchange rate dropped to 140.845, the lowest level this year, further boosting interest in gold. Geopolitical tensions, including the ongoing Russia-Ukraine conflict and instability in the Middle East, continue to drive investors toward gold as a safe haven.
Additionally, recent economic data has intensified recession fears. Initial jobless claims in the U.S. exceeded expectations, and the August Producer Price Index (PPI) increased by 0.2%, slightly above the anticipated 0.1%. Bob Haberkorn, a senior market strategist at RJO Futures, comments:
“With growing economic uncertainty, gold’s role as a wealth preservation tool is likely to be further solidified.”
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While gold enjoys increased attention, Bitcoin, often referred to as digital gold, has faced criticism regarding its effectiveness as a safe-haven asset. Recent analyses by CryptoQuant suggest that in the current risk-averse environment, investors prefer traditional safe-haven assets like gold over Bitcoin. The correlation between Bitcoin and gold has decreased, with Bitcoin increasingly influenced by broader economic and stock market trends.
As the Fed is expected to start easing monetary policy next week, it remains to be seen whether the added liquidity will flow into Bitcoin. The cryptocurrency’s future price movements may hinge on how effectively it can capture investor interest amid shifting economic conditions.
Despite gold’s impressive gains, its rally is not without risks. The technical indicators suggest a potential for price corrections, and Bitcoin’s relative underperformance as a safe-haven asset highlights ongoing uncertainties in the cryptocurrency market.
Bitcoin is outpacing traditional assets like gold due to increasing adoption by individuals and institutions. With political backing and a surge in value, it’s gaining traction as a reliable store of value, alongside stablecoins for everyday transactions.
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