Gold has been on a tear, breaking record after record. Futures tied to the metal hit an intraday high of $2,617.40 per ounce on Monday, a 26% increase for the year.
This rise has put gold far ahead of the S&P 500’s 18% gain. According to FactSet, this year is shaping up to be gold’s best since 2010 when it surged nearly 30%.
Gold’s surge is driven by expectations that the Federal Reserve will cut interest rates soon. The central bank is expected to lower benchmark rates by at least 25 basis points, possibly more.
CME Group’s FedWatch tool shows a 65% chance of a half-percentage-point cut. With inflation easing and rates on the decline, investors are seeking safety in gold.
Goldman Sachs expects this momentum to continue, with a forecasted price target of $2,700 per ounce by early 2025.
Gold ETFs make a splash
Goldman Sachs commodities strategist Lina Thomas noted that despite the Fed cut, gold prices still have room to grow due to central bank demand and the metal’s hedge against geopolitical risks. In a note she wrote that:
“While we see some tactical downside to gold prices under our economists’ base case of a 25bp Fed cut on Wednesday, we reiterate our long gold trading recommendation and our price target of $2,700/[troy ounce] by early 2025 given structurally higher central bank demand, the gradual boost from rate cuts, and gold’s hedging benefits against geopolitical, financial, and recessionary risks.”
ETF investors are starting to take notice, with funds like SPDR Gold Shares ETF (GLD) showing a nearly 25% increase this year.
VanEck Gold Miners fund (GDX) and VanEck Junior Gold Miners ETF (GDXJ) are also skyrocketing, with gains of 28% and 29% respectively.
Thomas added that while ETFs have been slow to respond to the gold rally, the Fed’s rate cuts will likely drive more capital into the ETFs as time goes on.
Bitcoin struggles to keep up
While gold is smashing records, Bitcoin has been stuck.
The top crypto closed at $59,200, a gain of just 0.83% for the day. Trading volume increased by 4.49%, showing some semblance of activity, but it hasn’t translated into a surge.
The overall market cap is up slightly, reaching $2.05 trillion, an increase from $2.02 trillion earlier.
Bitcoin’s exchange reserves in USD remain unchanged since April 2022, so there hasn’t been much movement in or out of exchanges.
This lack of activity is likely a sign that traders are sitting tight, waiting for a clear signal to either buy or sell.
The Stablecoin Supply Ratio (SSR) index, which measures the supply of stablecoins relative to Bitcoin, is at its lowest point this year.
This low SSR is driven more by sluggish activity in the altcoin market than by BTC itself. In other words, altcoins are lagging, and it’s dragging Bitcoin down with them.
Despite these conditions, retail investors are becoming more aggressive, especially over the last few months as Bitcoin has bounced back from its lows.
Leverage increases, volatility decreases
Bitcoin’s estimated leverage ratio across exchanges has been rising. Clearly, traders are taking on more risk by borrowing funds to increase their positions, hoping for a breakout.
The realized price data for Bitcoin shows that holders with less than six months of investment time have bought in at prices ranging between $57,816 and $66,976.
These are relatively high levels, meaning many investors are sitting on positions that they bought into recently and are hoping for a rally.
But here’s the thing. Some market watchers and economists don’t even think the Fed’s rate cut will do much for crypto.
If Jerome Powell and his team go for a big cut, like a 50 bps, that would mean that America’s economy is much more screwed up than we thought, which would in turn freak investors out.
They’ll start dumping everything. Stocks, crypto. The general consensus among economists, though, as seen in many surveys, is that the bank will go for 25 bps. So perhaps there is no real reason to worry.
