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Here’s why gold, bitcoin and stocks are all hitting new highs
Gold, bitcoin, the S&P 500, the Nasdaq Composite and the Nikkei 225 have all recently reached record highs. – Photo illustration MarketWatch/iStockphoto
Gold, a safe haven, was not the only one to reach new records, but its progression was followed by some riskier companions: bitcoin, the main American stock indices and other global stock indices.
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In general, “rising asset prices create bullish sentiment that spills over into other asset classes, making investors feel comfortable making new investments,” said Alex Pickard, vice president of research at investment firm Research Affiliates. “Positive liquidity flows increase asset prices. »
On the Comex, gold futures GC00 GCJ24 recorded a new record settlement, with prices closing Friday at $2,185.50 an ounce. They recorded a sixth consecutive record, according to Dow Jones Market Data.
Read: Gold marks another record. Here’s who’s not buying.
Bitcoin BTCUSD also hit a new all-time high on Friday, surpassing $70,000. On March 7, the S&P 500 SPX index set a record closing high of 5,157.36, while the Nasdaq Composite COMP closed at a record high of 16,274.94 on March 1.
Read also : There is a great mystery in the rally of everything: the record rise of gold
There has been “a lot of liquidity on the sidelines” in relatively high-yielding Treasuries, which look less attractive as Federal Reserve Chairman Jerome Powell indicates the Fed is close to cutting bond rates. “interest and riskier assets appreciate, Pickard said.
He expects continued market strength in gold, bitcoin, U.S. stocks and other markets as that money is deployed into riskier assets. Other global stock markets hitting all-time highs include Japan. Japan’s Nikkei 225 JP:NIK set a record on March 4 at 40,109.23.
“Market valuations are rising as anticipation of interest rate cuts increases,” said Jason Schenker, president of Prestige Economics.
“With the prospect of US monetary policy easing, asset values are poised to increase,” he told MarketWatch. “This is likely to support everything from US stocks to residential property prices.”
The US dollar is also likely to weaken due to Fed rate cuts, and geopolitical tensions are high and growing – “both of which are supporting gold prices.”
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Bitcoin versus gold
Bitcoin, meanwhile, is benefiting from the prospect of a Fed interest rate cut, a weaker dollar and geopolitical tensions, Schenker said.
“A swarm of hyped locusts bought bitcoin following the SEC Bitcoin ETF’s spot approvals earlier this year and ahead of next month’s redemption halving,” he said. Halving is a mechanism written into the Bitcoin blockchain algorithm to control the limited supply of the coin.
Read: Bitcoin halved again in April. Here’s why it’s different this time.
Bitcoin exchange-traded funds have performed well since they began trading in January. As of March 7, the iShares Bitcoin ETF IBIT, for example, had seen a net inflow of funds of approximately $9.45 billion since January 12, according to Dow Jones Market Data analysis of FactSet data. However, among gold ETFs, SPDR Gold Shares GLD has seen a net outflow of $4.15 billion year-to-date.
Bitcoin is a “digitally native asset,” while gold is a “physical asset” — one that investors can hold in their hands, said Pickard of Research Affiliates. This is an attractive grade of gold, he said, so gold prices are rising through physical purchases, while gold ETFs are experiencing outflows.
On the other hand, for many investors, a Bitcoin ETF is “a safer and easier way to access Bitcoin than buying the coin itself,” so Bitcoin prices rise through purchases of ETFs, Pickard said.
Read: Has the Bitcoin ETF frenzy driven crypto to a record high? How the experts see it.
Pickard expects Bitcoin to lure investors away from gold, with the “lure” being “media, traditional and social, and word of mouth.”
“We live in an attention economy, and bitcoin gets more attention than gold,” he said, adding that bitcoin investors are likely growing faster than gold investors.
Nonetheless, both gold and bitcoin may see their prices rise due to “more buying than selling in both markets,” Pickard said. “I expect both assets to rise, but bitcoin to outperform gold.”
S&P 500 versus gold
At the same time, looking at changes in the value of gold relative to the US stock market, or more specifically the S&P 500 index, can help gauge investor confidence.
Comparing gold with the S&P 500 over time can give “a sense of whether investor sentiment in stocks is rising or falling, and when it might be overly optimistic or pessimistic,” wrote Jessica Rabe, co-founder of DataTrek Research, in a note this week. .
She pointed out that the S&P 500/gold price ratio does “an excellent job of highlighting long-term trends in stock investor sentiment.”
The S&P 500 trades at 2.4 times the price of gold, at a standard deviation from the long-term average of 1.6, she said. So, “neither stocks nor gold are significantly undervalued relative to other assets based on these long-term calculations,” Rabe said.
Pickard, meanwhile, said the 2.4 ratio, “which has been around for about 5 years,” indicates that investors are “both equally confident in the S&P 500 and gold.”
A break above 2.75 would indicate increased investor confidence in stocks relative to gold, while a drop below 2.0 would indicate greater investor confidence in gold relative to stocks , did he declare.