The Federal Reserve kept interest rates unchanged at the end of two days of monetary policy. There was no doubt that this would be the case. Inflation in the United States remains high and well above the 2% target, even rising. And the economy appears not only resilient, but also solid. In the meantime, Bitcoin and gold they fall back from historical highs and this trend is linked, as we will see, to the prospects for global rates.
Prices down after records
The “cryptocurrency” stands below $57,600, at its lowest level for over two months, losing 27% compared to the historic highs reached in March above $73,000.
And to think that a few days ago there was the famous one “halving“, which should have supported its prices. If the medium-term prospects remain “bullish”the short-term scenario has darkened due to the expected maintenance of Fed rates at current levels for a longer period than expected.
The same applies to gold, which sees prices fall below 2,310 dollars an ounce, while in previous sessions it had soared above 2,400 dollars. From historic highs the drop is around 4.5%. Bitcoin and gold share the characteristic of both being negatively correlated with rates. For probably different, perhaps opposite, reasons. The first is an asset considered risky by the market and for this reason its demand tends to grow when liquidity abounds and bond yields fall. The second is the “safe assets” par excellence, a defense against inflation. Higher rates serve, however, precisely to combat the high cost of living. Furthermore, they strengthen the US dollar, the currency in which the metal is traded on international markets. The stronger it is, the more expensive gold becomes.
Cocoa boom and alleged financial speculation
We can’t help but tell you about cocoa. What does this have to do with Bitcoin and gold? Before answering, know that the delicious grains have lost 37% compared to the historical highs reached a few sessions ago.
They used to cost more than 12,000 dollars per ton, today they can be bought for around 8,900 dollars. On an annual basis, we still remain at a gain of around 190%. Prices almost tripled. There would be technical reasons behind this collapse. With prices exploding, maintaining “margin calls” for investors would have become very expensive. And some have decided to liquidate positions, also to realize profits.
However, cocoa can also be compared to Bitcoin and gold due to its correlation to rates. That behind his surge there is a certain financial speculation it is probable, although the fundamentals favor prices. Speculation that feeds on the abundant money circulating on the markets. The prospect of global rates remaining higher for longer makes debt investing more costly. Lower liquidity has depressive effects on assets, including “commodities”. At the beginning of April the same oil (Brent) exceeded 90 dollars a barrel, the threshold at which it stood until a week ago. Now, we are in the $84 area.
Bitcoin and gold mirror global rates
What do we mean by this? The prices of Bitcoin, gold, cocoa, crude oil and other raw materials are also the result of the monetary policies adopted by the major central banks. Indeed, the “cryptocurrency” was born in January 2009 as a reaction by an unknown Satoshi Nakamoto to the global financial crisis and the consequent printing presses of the institutions. The rise of metal, however, does not seem destined to stop. Demand from central banks themselves has been high for years and shows no sign of decreasing, while industrial uses are rising, including for Artificial Intelligence, and jewelery purchases remain high. Above all, geopolitical tensions are rising and part of the planet is aiming to counteract it status of the dollar as the world’s reserve currency.
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