Recently, Bitcoin has embarked on a decisive rally towards its all-time price high, and surprisingly, gold has also begun an unstoppable surge upwards.
There's nervousness in the markets. Yesterday, Federal Reserve Chairman Jerome Powell finally confirmed the intention for the much-discussed and awaited interest rate cuts. However, he did so with extreme caution, reiterating the priority of the 2% inflation target, which the US economy has not yet reached, and emphasizing the necessary gradual nature of the cuts.
The first possible rate cut by the Fed is expected in June.
The price of gold today is $2,142 per ounce. Such prices have never been seen before, and the price has been above the $2,000 threshold for months now.
Once again, US monetary policy decisions are having a significant impact on price movements. The precious metal is currently hitting a new all-time high and has been setting new price records for weeks. It is currently traded at $2,165.85 per ounce, breaking the previous price record set last December at $2,135 per ounce. Since then, the price has remained consistently above the $2,000 mark.
Powell confirmed the rate cut policy but did not define a timeline.
During his speech to Congress, where the head of the American central bank presented future prospects for economic policy, Powell deemed it appropriate to cut rates in 2024. However, he reiterated the urgency to proceed with caution and slow progression, admitting that the rate policy has "reached its peak."
High interest rates serve to raise the cost of money and therefore reduce demand, thus acting as a brake on inflation. In contrast, gold does not generate interest, making it, by definition, a safe-haven asset.
In summary, while investing in stocks or other assets entails periodic expenses, this is not true for gold, which does not generate interest or returns. The advantage of owning it lies in its ability to preserve its value intact until the time of sale, potentially gaining in value appreciation.
It is an asset that investors use to convert cash, subject to devaluation, to protect the value of their wealth over time.
Geopolitical risk factors and monetary policies play a key role in the price of gold.
What is surprising is that the confirmation of the upcoming rate cuts did not halt the price rally, as one might expect. Observers had long dismissed the idea of a first cut in March, postponing expectations to June, as seems to have been confirmed.
The picture becomes more intricate when looking at the complex web of international relations. In the geopolitical arena, factors such as uncertainties about US foreign policy, support for Israel, and tensions on various war fronts affecting the Western economy play a significant role. The current crisis in the Chinese market also exerts strong pressure on the price of gold.
Wars in Ukraine and Israel may have contributed to reaching a new all-time high.
After all, over the centuries, gold has solidified its role as a crisis currency; currently, not only investors but also central banks are increasingly purchasing gold.
But as with Bitcoin, the increase is likely fragile.
Diversifying investments to include emerging opportunities
Gold and Bitcoin have acquired the status of safe-haven assets, one for centuries and the other in the last decade.