The war in the Middle East would favor this trend.
In a month, there will be elections in the United States.
The situation for the markets has changed this week with Iran’s attack on Israel that fueled geopolitical tensions. This is something that can benefit assets like gold and bitcoin (BTC), according to analysts at investment bank JP Morgan.
“Rising geopolitical tensions and the upcoming US elections are likely to reinforce what some investors call ‘downgrade trading’, thus favoring both gold and bitcoin,” holdin the bank’s analysts in a note on October 3.
Specialists understand downgrade trading as an investment tactic to protect or benefit from uncertainty and expectations of instability. Based on it, They could rotate part of their portfolio capital towards assets like gold and bitcoinwhich do not depend on a particular economy.
Both the metal and bitcoin have a scarce supply that is issued through decentralized mining, which facilitates their price rise in response to demand in the long term. This similarity makes the currency considered by many as “digital gold”, despite the fact that others classify it as a risk asset due to its high volatility and short lifespan in the market.
With the escalation of war between Israel and Iran, gold reacted upwards approaching its record price reached last week. On the other hand, the S&P 500 (SPX), an index that compiles the shares of the main 500 companies listed in the United States, moved away from its all-time high recorded last week.
Meanwhile, bitcoin also initially responded lower like stocks, although it later showed some recovery. However, unlike the metal and the SPX, it has remained in a corrective sideways range for seven months when it recorded a new price record, as the following chart shows.
“This rise in gold prices is influenced by a 4-5% drop in the dollar and a significant drop in real US Treasury yields by 50-80 basis points,” JP Morgan analysts note.
However, specialists highlight that “gold appreciation has exceeded what these factors alone would suggest, indicating a resurgence of ‘debasement trading’.”
Bullish expectations grow for gold and bitcoin
The cut in interest rates in the United States three weeks ago for the first time in more than four years motivated the current market scenario. As reported by CriptoNoticias, this measure seeks to boost the economy by increasing liquidity, which is an indicator of weakness. Therefore, historically, such a policy has unleashed an upward trend for gold.
Different specialists have expressed bullish expectations for gold and bitcoin in this scenario, which is reinforced by the escalation of war between Israel and Iran. In addition, the United States presidential elections, which are in November, increase uncertainty about who the next government will be, something that can fuel this perspective.
However, bitcoin’s high volatility may scare off investors looking for a short-term safe haven asset. Therefore, its value as “digital gold” in this field must gain strength in order to reactivate its upward trend if geopolitical tensions grow.
