With market expectations that the U.S. Federal Reserve will soon cut interest rates and rising tensions in the Middle East trigger rising demand for safe havens, the gold market has once again performed well. Spot gold prices rose by more than US$40 yesterday (12th) to close at US$2,472.12 per ounce, and continued their gains today, hitting an 11-day high of US$2,476.99 per ounce earlier.
The price of gold is still fluctuating at a high level, trading at US$2,466.65 per ounce as of press time, down slightly by 0.28% in the past 24 hours, and has soared nearly 20% this year.
High interest rate cut expectations push gold prices higher
The United States will release the Producer Price Index (PPI) tonight and the Consumer Price Index (CPI) tomorrow. The market is paying close attention to these inflation indicators to confirm that inflation is further moving in the right direction, especially when people generally The Federal Reserve is expected to cut interest rates in the second half of the year.
If PPI and CPI continue to rise, indicating increasing inflationary pressure, the Federal Reserve may consider maintaining or raising interest rates to curb inflation. On the contrary, if PPI and CPI fall, indicating that inflationary pressure has eased, this may prompt the Federal Reserve to consider cutting interest rates to stimulate economic growth.
According to the CME Group's FedWatch tool, the market believes that the probability of the Federal Reserve cutting interest rates by one percentage point in September is 50.5%, and the probability of two percentage points is 49.5%, and has ruled out the possibility of not cutting interest rates.
Since gold itself does not earn interest, interest rate cuts will reduce the opportunity cost of holding gold, thus making it more attractive to investors. In addition, expectations of interest rate cuts were also reflected in the decline in U.S. Treasury yields on Monday, which also provided opportunities for gold prices to rise. Robert Tipp, chief investment strategist at PGIM Fixed Income, said:
U.S. Treasuries have enjoyed a week-and-a-half rally that saw a surge in recession fears push benchmark yields to 14-month lows as investors seek to secure gains as a precaution against a possible recession.
Safe-haven funds pour into gold
In addition to concerns about an economic recession triggering a surge in safe-haven demand, rising tensions in the Middle East this week have intensified the influx of safe-haven funds into gold.
On Monday, Ukrainian troops advanced 30 kilometers into Russia , the deepest and most significant counteroffensive since Moscow's full-scale invasion of Ukraine in February 2022.
Meanwhile, Israeli forces continued operations near the southern Gaza city of Khan Younis even as the international community pushed for a deal to end the fighting in Gaza and prevent it from slipping into a wider regional conflict with Iran and its proxies.
However, the White House stated today that Iran may launch a "major" attack on Israel as soon as this week. White House National Security Council spokesman John Kirby told reporters:
We must prepare for a possible series of major attacks. Regarding the possible time point, we share the same concerns and expectations as the Israeli side, which may be this week.
Does Bitcoin have a chance?
When the war was about to break out, gold once exceeded US$2,476, approaching a record high; however, Bitcoin failed to function as a safe-haven asset. Instead, it fell below US$60,000 yesterday, and once dropped to about US$57,500. At the time of writing, it was Fluctuating around $60,000.
As can also be seen from the figure below, as of early August, the correlation between Bitcoin and gold has been very low recently. The correlation in the past 30 days has been only 0.28, and the correlation in the past 90 days has been negative. It can be seen that Bitcoin wants to become a safe haven for digital gold. Risk assets still have a long way to go.
Looking back at the three regional conflicts that have occurred in the past two years: the Russia-Ukraine war in 2022, the conflict between Israel and Hamas in 2023, and the conflict between Iran and Israel in 2024, comparing the trends of Bitcoin and gold , we can find the rise and fall of gold and Bitcoin. It is not certain, and the volatility of gold is lower and that of Bitcoin is higher. Therefore, if you choose to invest in Bitcoin at this time, you must be able to withstand higher volatility than gold.
Further reading: Is Bitcoin really a safe-haven asset? Comparing the outbreak of the past three wars, does BTC outperform gold and the S&P 500?
