Gold and BTC explode higher, waiting for FED next move

Expectations of declining U.S. rates are sending classic rate-sensitive assets skyrocketing in part because, unlike stocks and bonds, they have zero intrinsic yield, meaning they pay no interest.

Gold jumped more than 3 percent to over $2,100 early Monday before pared much of those gains, touching new all-time highs amid growing expectations that the U.S. Federal Reserve will hold interest rates steady at this month’s meeting and may begin cutting rates next year. Traders also doubled down on these bets despite Fed Chairman Jerome Powell’s reaction to rate-cut expectations, saying it is “premature” to anticipate a policy easing.

Markets now see a 60 percent chance that the U.S. central bank could cut its benchmark rate in March next year and are fully discounting a cut in May.

On the data front, the U.S. ISM manufacturing PMI fell short of estimates in November, indicating the 13th consecutive contraction in industrial activity and supporting the outlook for lower rates to revive an economy that still seems uncertain. In addition, the latest PCE inflation reading in the U.S. indicated a slowdown in prices, while continuing jobless claims reached their highest level in two years. All factors pushing for a rate cut.

Here is the chart on the value of gold.

This, on the other hand, is the value of BTC, which has surpassed $41,000

Also valid for BTC is the fact that we are approaching the new halving of Bitcoin, the famous Halving, which will dryly reduce its supply and which, at the current pace, is expected to take place next April.

Obviously, these speculative assets, as they inflate today,  may deflate tomorrow, especially if inflation shows signs of waking up, but that is the current situation and, probably, it will remain that way for a few weeks.