Gold Hits New Records as Bitcoin Struggles—Which is the Smarter Safe Haven?
Gold Hits New Records as Bitcoin Struggles—Which is the Smarter Safe Haven?
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Digital Asset Market: Bitcoin (BTC) saw a decline in its weekly gains, falling to around $63,000 after reaching a high of $64,500. This was possibly due to China announcing a stimulus package to revive its slowing economy, with BTC showing a lack of response to this news. Other primary tokens, such as Ether (ETH), BNB Chain’s (BNB), XRP (XRP), and Solana’s Sol (SOL), also saw losses. The broader market, represented by the CoinDesk 20 Index (CD20), also fell by 1.8%. However, Celestia's TIA tokens saw gains of 17% after raising $100 million in a fundraiser.
In contrast, stock indices in the region saw gains, with Hong Kong's Hang Seng index climbing 3.2% and the Shanghai Composite index adding 2.3%. The PBOC's rate cuts and stimulus measures are expected to weaken the yuan slightly, but medium-term factors suggest a gradual currency appreciation. The upcoming U.S. presidential election and a possible win by Democrat Kamala Harris may not be as bearish for the market as initially thought, as she has expressed support for the growth of the crypto sector.Macro Economics: In a move to boost the economy, the governor of the People's Bank of China announced a series of measures, including a 20bp primary policy rate cut, a 50bp RRR cut, and a 50bp interest rate cut on mortgages. This news has led to a surge in global markets, with US equity futures up and European stocks nearing record highs. Chinese stocks listed in the US also saw significant gains in premarket trading. However, there are concerns about the impact of these measures on inflation and bond yields, and some analysts believe further fiscal support may be necessary. Despite this, the announcement has been met with positive reaction and a rally in Chinese stocks and bonds. The effectiveness of these measures in addressing China's economic slowdown caused by the pandemic remains to be seen.
Equities: The S&P 500 and Dow Jones Industrial Average inched upwards on Tuesday before pulling back from record levels as disappointing consumer confidence data released dampened investor sentiment. The Dow rose to an all-time high earlier in the session but ended the day up by only 0.07%. The Nasdaq Composite fell 0.39%. Markets were also influenced by JPMorgan CEO Jamie Dimon's warning about geopolitical instability and its potential impact on the economy. However, China stocks notably gained following stimulus efforts from Beijing, while the major indices are on track for solid monthly gains amidst hopes for lower interest rates from the Federal Reserve.
The Fed and US Treasury: Consumer confidence fell in September to its lowest level since 2018 as Americans expressed more significant concerns about a weakening job market. This decline comes despite the Federal Reserve's recent decision to cut interest rates and a solid overall economy. This is the most significant drop in consumer confidence since August 2018. The cutoff date for the survey was September 17, before the Fed's announcement, but recent job market data shows that consumers are feeling the impacts of a tightening labor market. However, this drop in confidence does not necessarily signify a decrease in spending, as previous confidence measures have remained low while spending habits among households have stayed resilient. Powell said before the recent 50 bp cut that "The US economy is in good shape," and that "It's growing at a solid pace. Inflation is coming down. The labor market is in a strong place. We want to keep it there. That's what we're doing [by cutting interest rates." The drop in confidence supports the last Fed decision and ensures further cuts this year and into the first 1/2 of next year. The treasury yields are down a bit this morning.
Geopolitical: Amidst escalating conflict in Lebanon and potential mass displacement in Gaza, gold demand surges. Investors are buying both physical gold and shares in gold mining companies. The usual correlation between gold prices and ETF holdings has shifted, now aligning with net gold-managed futures - a sign of central bank activity. Global instability, the looming threat of wider war, the Fed's recent rate cut, and Christine Lagarde's remarks on deflation and a potential return to the gold standard further contribute to gold's appeal. Even positive ETF flows add more momentum to the rising gold market. Compared to its price in October 2004, gold on the Comex has seen a dramatic increase of 600%, outpacing the S&P 500's 500% growth over the same 20-year period.
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View from our desk
Bitcoin remains range-bound at around $63,000 as investors await a clearer market direction. The effects of the Fed rate cut and recent Chinese stimulus measures seem to be fully priced in, with any buying pressure quickly fading. This suggests a lack of new entrants into the market, making it unlikely that Bitcoin will surpass its recent high of $64,500 without a significant positive catalyst.
Meanwhile, gold continues to climb, setting new records as it reinforces its role as a safe haven during times of economic uncertainty. The precious metal reflects the 'smart money's' growing concern over global instability, with ongoing conflicts in the Middle East and Ukraine adding to the risk-off sentiment. Gold is currently viewed as a more reliable hedge than Bitcoin in today's volatile climate.
As expected, underwhelming consumer confidence data led to a slight dip in treasury yields today. The Fed is projected to maintain its course of tightening monetary policy, with eight or more rate cuts anticipated through mid-next year. This outlook adds further pressure on risk assets like Bitcoin, with cautious optimism for further easing ahead.
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