Global turmoil and rate cut hopes send gold to a record high… and bitcoin above $42,000

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Gold spiked to a record high and bitcoin surged above $42,000 as a combination of global turmoil and interest rate cuts hopes sent their prices soaring. Global assets reacted to an attack on an American warship in the Red Sea and speculation about US interest rate cuts. On a day of wild swings on financial markets, the price of the precious metal surged to $2,111.39 per ounce before falling back. And the surge for bitcoin saw it breach the $42,000 mark for the first time since early 2022. This morning, gold was trading at $2,029.81 and bitcoin at $41,667. The moves reflect a complex series of factors driving asset markets including prospects for the US and global economy and the potential repercussions of war in the Middle East. Gold is seen as a safe haven during times of uncertainty. And cryptocurrencies such as bitcoin – while notoriously volatile – can seem more attractive like other risky bets when interest rates are falling. Crypto is also being boosted by speculation that US regulators will soon approve a spot bitcoin exchange-traded fund (ETF). That could throw cryptocurrencies open to millions more ordinary investors by enabling them to take a punt via a stock market listed vehicle. Underscoring the market sentiment is the growing feeling that a US interest rate cut will come soon. Traders were yesterday pricing in a 70 per cent chance that a cut will come as soon as March. The US Federal Reserve embarked on an aggressive series of rate hikes in the spring of last year in a bid to bring inflation under control.But the Fed stopped hiking rates over the summer as speculation grew that it is now done and may soon start to cut rates. Comments from Fed chairman Jerome Powell last Friday have done nothing to dampen the speculation. He made clear that he was prepared to raise rates further if needed but also said they were ‘well into restrictive territory’ and doing their job of slowing inflation. Expectations of a US interest rate cut have weighed on the dollar. Hal Cook, senior investment analyst at Hargreaves Lansdown, cited that as one factor behind gold’s recent upturn. ‘This makes gold cheaper for investors using non US dollar assets to buy gold and has likely tempted some marginal buyers to invest,’ he said. Another factor is wider uncertainty. Cook added: ‘Heightened global geopolitical risk tends to increase demand for gold and while the potential for the Israel-Hamas conflict to escalate may have reduced, fundamentally geopolitical risks are higher now than they were six weeks ago. ‘Finally, a number of central banks have been increasing their gold holdings.’ The latest spike in gold came as news was emerging overnight of attacks on shipping in the Red Sea. Meanwhile, bitcoin’s rally suggests the crypto market may finally be emerging from the gloom of the past year with the collapse of major platform FTX. It is far below its 2021 high of $69,000 but up by more than 150 per cent so far this year. Victoria Scholar at Interactive Investor said: ‘The crypto winter appears to be well and truly over.’

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