The Role of the Federal Reserve
Mark Connors, director of research at digital asset-management company 3iQ, explains that both assets rallied due to optimism surrounding the Federal Reserve’s monetary policy. Many investors believe that the Fed is nearing the end of its rate hike cycle and could potentially start cutting its key policy rate as early as March next year.
Increasing Likelihood of Rate Cuts
According to CME FedWatch tool, Fed-fund futures traders are currently pricing in a more than 50% likelihood of a 25 basis points interest rate cut by the U.S. central bank in their March meeting. This represents a significant increase from just a week ago when the probability stood at 21.5%.
Impact of Declining Treasury Yields
While the 10-year Treasury yield has experienced a recent increase, FactSet data shows that it has declined by 39 basis points over the past month. This decline in Treasury rates is considered bullish for both gold and bitcoin. Greg Magadini, director of derivatives at Amberdata, explains that since neither asset is interest-bearing, higher Treasury yields make them less attractive to investors.
Parallel Trading Patterns
Magadini highlights that this year, gold and bitcoin have often exhibited similar trading patterns. For instance, they saw a correlated increase in value following the U.S. banking mini-crisis in March and the Israel-Hamas war in October.
In conclusion, the recent rally in both bitcoin and gold can be attributed to increased optimism regarding the Federal Reserve’s future interest rate decisions. Amidst expectations of rate cuts, investors have turned to these assets, propelling them to reach new highs.
Bitcoin and Gold Rally Simultaneously
According to David Tawil, president and co-founder at digital asset fund ProChain Capital, the recent rally in both bitcoin and gold may simply be a coincidence. While bitcoin’s surge is primarily driven by optimism surrounding the potential approval of a bitcoin exchange-traded fund (ETF) by the U.S. Securities and Exchange Commission, Tawil believes that this rally will continue until the end of the year. In fact, he predicts that the cryptocurrency could potentially reach a high of $47,000 once the ETF is approved.
On the other hand, the performance of gold remains tied to macroeconomic factors, particularly the upcoming U.S. jobs report. James Harte, an analyst at Tickmill Group, emphasizes the importance of monitoring this report. If the results suggest a weaker than expected job market, it could weaken the U.S. dollar and consequently lead to an increase in gold prices in the short term. Conversely, a stronger than expected report could have the opposite effect on gold prices.
On Monday, gold futures declined by 2.3%, with a loss of $46.90 per troy ounce, reaching $2024.10, according to Dow Jones market data. Meanwhile, bitcoin experienced a 5.5% increase over the past 24 hours, reaching just below $41,900, based on CoinDesk data.
In terms of U.S. stocks, Monday ended on a downward trend. The Dow Jones Industrial Average (DJIA) decreased by 0.1%, while the S&P 500 (SPX) declined by 0.5%, and the Nasdaq Composite (COMP) fell by 0.8%, according to FactSet data.