Gold Gains Ground Over Bitcoin: The Rising Demand for the Precious Metal
Gold continues to hover near record levels amidst a risky and fluid international context, while Bitcoin lags behind. This situation keeps investors alert for potential significant movements, as highlighted by a strategy consultant at XTB Romania.
Political Statements Under Scrutiny
Iran has announced conditions to forgo an attack on Israel, thereby creating a pathway for de-escalation following earlier statements that hinted at an imminent response. Traders are closely monitoring political declarations, given the potential consequences of a large-scale conflict. Already on edge from the sharp declines experienced at the beginning of last week, traders are prepared for swift action, especially as significant macroeconomic news looms.
Inflation Data Sparks Investor Enthusiasm
The latest producer inflation data has rekindled investor enthusiasm, providing a “green light” for adjustments to monetary policy. The annual rate dropped to 2.2% in July from 2.7% in June, with a 0.6% monthly increase in goods, counterbalanced by a 0.2% decrease in services. According to the New York Fed, consumer expectations for inflation over the next three years have reached a series low of 2.3%, marking an 11-year trend.
A cooling consumer appetite, evident in evaluations of consumer goods companies and some surveys, may also align with these trends, as noted by the strategy consultant. Should Wednesday’s U.S. consumer inflation report confirm an annualized rate below the previously estimated 3%, expectations for a 1-point interest rate cut by the Fed this year will strengthen. Currently, the market sees nearly a 40% chance for reductions exceeding 1.25 percentage points, indicating two rounds of double cuts of 0.5 points each.
Gold’s Performance Amidst Market Fluctuations
Gold has advanced by 19.8% this year and 29.6% over the past 12 months, displaying short-term momentum but apparent indecisiveness in the face of unclear fluctuations over the past month, despite various events. However, with an inflation report below expectations, gold may find short-term support for an upward trajectory towards new peaks.
Emerging Market Demand Drives Prices
Investor demand from emerging markets, whether in the form of physical coins and bars or financial assets, has been the primary driver of prices in recent years. Estimates from Nomura suggest that three-quarters of demand over the past decade has originated from emerging economies, with a significant contribution from central banks. The challenging economic environment and low inflation in China bolster the appetite for the precious metal.
Even if it merely maintains its current appreciation, gold is on track for its best annual performance since 2019. The mix of economic and geopolitical risks appears to create an asymmetry in working scenarios, favorably oriented towards gold over the long term, as emphasized by the XTB Romania strategy consultant.
Virtual Gold Loses Ground
While the precious metal reaches historic highs, Bitcoin, on the other hand, has remained relatively stagnant.
Bitcoin’s Recent Market Movements and Investor Sentiment
The recent decline in the early days of the month has demonstrated that the virtual asset is not “decoupling” from stock market trends, as the need for liquidity continues to overshadow the notion of being a “safe haven.” On Wednesday morning, Bitcoin was trading at a distance of 17.4% from its record high, following a recovery of over $10,000 from the low of August 5, when it had dipped below the $50,000 threshold.
The release of amounts recovered after 10 years from former holders at Mt. Gox was not a dramatic event, but it did contribute to selling pressure. Alongside the general declines in stock markets, the lack of support allowed for a correction of over $20,000 for one Bitcoin between July 29 and August 5.
Despite these fluctuations, Bitcoin remains up by 37.7% this year and has increased by 106.9% over the past 12 months, thus providing yields that surpass those of gold. However, it comes with a higher price of uncertainty, as noted by market analyst Claudiu Cazacu.
Although capital markets have largely recovered, including those in Japan, which shocked with their percentage variations, a certain unease persists. Investor sentiment, measured by the volatility index, has returned to balanced levels seen before August 5, as the market awaits a report that could pave the way for rapid and deep interest rate adjustments in the United States.
For Bitcoin, which tends to be more volatile, and gold, which may be more “settled,” these cuts could fuel optimism among market participants as the year progresses, emphasizes Cazacu.
