Gold prices have been on a tear in recent hours, with retail investors buying assets linked to the metal en masse. This surge in the price of the golden metal comes as expectations of a sharp rate cut increase. Cryptocurrencies and stocks have also seen significant gains during the day on Friday.
Until a few hours ago, the consensus was that next week’s rate cut would be 25 basis points. However, expectations for a larger cut have recently increased. Bets on a 50 basis point increase have risen to 41%, leading to a powerful rally in Asian stocks.
Echoing this new increase in expectations, stocks on the New York Stock Exchange also started a bullish rally. According to data compiled by Bloomberg, the benchmark index, the S&P 500, is up 0.66%. Meanwhile, the Nasdaq is also up 0.53%.
But the big star of the day was undoubtedly gold. On Thursday, the golden metal rose 1% to set a new all-time high. At the time of writing this note on Friday, data from Goldprice.org shows that an ounce of gold is trading at $2,581 dollars.
Gold price maintains an outstanding rally this Friday. Source: Goldprice.org
Stocks and cryptocurrencies respond to the call
The reaction of stocks and cryptocurrencies to this new macroeconomic reality was not long in coming. As mentioned above, the main indices of the American stock market are up during the day on Friday. At the same time, the main cryptocurrencies are also showing green numbers both in 24 hours and in 7 days.
For example, Bitcoin is priced at $59,708 per coin at the time of writing (GMT: 16:22 on Friday). As data from CoinMarketCap shows, the pioneering Cryptocurrency has a return of +3.13% over the past 24 hours and +10.42% over a one-week period.
The fact that traders are increasing their bets for a massive rate cut is a positive element for equities. The continued freeze in inflation, both in the CPI and the PPI, is likely to be enough of an argument for the Federal Reserve to consider a 0.5% increase in the interest rate. Added to this are elements such as the continued cooling of the US labour market.
Understanding this last factor is crucial considering that the cooling of the labor sector is a clear sign of recession. It is therefore normal that a good part of investors also direct their capital towards defensive assets such as those related to gold. In any case, gold is presented as a very attractive asset in this context.
A curious situation for investors
From the above situation, it can be said that investors have enough reasons to take two paths. Basically, they have arguments to bet on risky assets, such as stocks and also cryptocurrencies. This is due to the possibility of a massive interest rate cut.
However, at the same time they have arguments for betting on reserve assets such as gold and other metals. This is due to the constant downturns in the labour market. As already mentioned, the latter is a sign of recession and, as is known, during such contexts capital tends to look for defensive assets.
Investors are currently split in one direction or the other, but this reality is unlikely to last long. The magnitude of the rate cut will determine whether stocks and cryptocurrencies continue to rise or enter a bearish trend again. The same can be said for gold.
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