Bitcoin and gold soar on renewed investor appetite and rate cut hopes

Bitcoin and gold have both surged in recent weeks, with Bitcoin reaching a two-year high above $67,000 and gold nearing record highs.

The price of Bitcoin hit a session high of $67,355 on Monday evening in London, having already reached a new two-year high in Asian trading. This comes as the largest cryptocurrency gained 50% so far in 2024, with a significant portion of the rise occurring in the last few weeks. This coincides with a surge in inflows into U.S.-listed bitcoin funds, following the approval of spot bitcoin exchange-traded funds (ETFs) earlier this year.

The launch of these ETFs has opened the way for new large investors and has rekindled enthusiasm reminiscent of the run-up to record levels in 2021. As the price continues to rise, investor confidence seems to be snowballing, leading to further inflows.

Data from LSEG shows that net flows into the 10 largest U.S. spot bitcoin funds reached a staggering $2.17 billion in the week leading up to March 1st, with over half of that amount going into BlackRock’s iShares Bitcoin Trust.

The positive sentiment surrounding Bitcoin has also spilt over to other cryptocurrencies. Ether, the second largest cryptocurrency by market value, has risen by 50% year-to-date and was trading at a two-year high of $3,579 on Monday. XRP, another major player in the cryptocurrency space, also joined the rally, reaching a high of $0.66.

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Meanwhile, gold prices soared to near-record highs, jumping 1.6% on Monday to trade at $2,120. This surge is attributed to increased bets on a potential interest rate cut by the U.S. Federal Reserve in June.

Gold’s price rose by around $50 over the course of last week, driven by a combination of factors including tepid U.S. manufacturing and construction spending data, and a reduction in price pressures.

The current market sentiment is heavily influenced by the expectation of a potential rate cut. According to the CME Fed Watch Tool, markets are currently pricing in a 71% chance of the Fed cutting rates in June. If inflation data remains under control, gold is expected to continue its upward trajectory.

While traditionally seen as a safe haven for wealth preservation, the non-yielding nature of gold makes it vulnerable to rising interest rates. Higher interest rates typically lead to increased returns on competing assets like bonds, and a stronger dollar, making gold a less attractive option for investors holding other currencies. However, the current market conditions, with the prospect of lower interest rates in the near future, are proving to be favourable for both Bitcoin and gold.