A shift in Interest Rates Expectations Sees Gold and Bitcoin Surge

Many traders and Investors are beginning to foresee a rising chance of interest rate rate cuts in the US and the potential for a follow through in Europe, which has reignited interest in other assets which saw prices rise significantly. As Asian markets started the trading week, the price of gold jumped above $2,000, up 3%, before retreating.

Demand for dollars ticked up again later in the trading session on Monday, helping to push gold into retreat. Many investors holding gold were also taking advantage of the recent highs to sell, analysts said. The gains have followed a weeks-long climb for gold, which is seen as a “safe haven” and which saw demand rise after the start of the Israel-Gaza war.

The recent rally was sparked by comments on Friday by the head of the US central bank, Jerome Powell. The Federal Reserve disrupted financial markets last year as concerns about soaring inflation prompted it, along with other central banks around the world, to abruptly push interest rates to the highest levels in more than two decades to try to stabilise prices. The interest rate rises forced many investors to re-think strategies as investments that were considered less risky, saw greater demand.

That was before the speech on Friday, which saw Powell say that the Federal Reserve’s policy was now “well into restrictive territory”, meaning that rates were now high enough to cool the economy and stabilise prices, without any further need for further interest rate hikes.

Indeed, many traders are expecting an increasing chance that central banks will actually cut rates, even as soon as March 2024, though Mr Powell has sought to dampen those immediate expectations.

“If signs of low interest rates become more evident, gold should continue to soar next year,” Alexander Zumpfe, a precious metals trader at Heraeus, told Reuters.

Financial markets in the US generally have rallied in recent months, as analysts grow more optimistic that the bank will be able to bring inflation under control without tipping the US economy into recession. The picture has been more mixed in Europe with Germany already expected to be in recession and the UK skirting with a possible recession, having avoided it up until now.

The price of Bitcoin also continues to recover after higher interest rate rises and a series of scandals in 2022 helped spark a plunge which some have described as a crypto crash. The most well-known digital asset momentarily surged above $42,000, its highest level since April 2022; while its price has more than doubled since the start of the year.

Bitcoin is also hoping investors will start to move on, after US regulators have taken action against the heads of two of the biggest crypto trading firms, FTX and Binance. There is optimism surrounding the hope that US regulators are likely to approve new kinds of trading products linked to Bitcoin as early as next month (such as Exchange Traded Funds or ETF’s).

(Source: BBC)

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