Safe-haven gold hasn’t been alone in its climb to fresh record highs, but it’s advance has been followed by some riskier companions: bitcoin, major U.S. stock indexes, and other global equity benchmarks.
In general, “rising asset prices create bullish sentiment which spills over into other asset classes, making investors feel comfortable making new investments,” said Alex Pickard, vice president of research at investment firm Research Affiliates. “Positive liquidity flows increase asset prices.”
On Comex, gold futures GC00 GCJ24 scored a fresh record-high settlement, with prices Friday ending at $2,185.50 an ounce. They’ve tallied a sixth straight record finish, according to Dow Jones Market Data.
Bitcoin BTCUSD reached a fresh record on Friday too, topping $70,000. On March 7, the S&P 500 index SPX set a record close at 5,157.36, while the Nasdaq Composite COMP closed at a record 16,274.94 on March 1.
There has been “a lot of liquidity on the sidelines” in relatively high yielding Treasurys, which have been looking less attractive as Federal Reserve Chair Jerome Powell indicates the Fed is close to cutting interest rates, and as riskier assets appreciate, said Pickard.
He expects continued market strength across gold, bitcoin, U.S. stocks, and other markets, as this money gets deployed into riskier assets. Other global stock markets hitting all-time highs include Japan. Japan’s Nikkei 225 JP:NIK set a record on March 4 at 40,109.23.
“Valuations across markets are rising as anticipation of interest rate cuts grows,” said Jason Schenker, president of Prestige Economics.
“With a prospect of looser U.S. monetary policy, asset values are poised to rise,” he told MarketWatch. “This is likely to support everything from U.S. equities to residential real-estate prices.”
The U.S. dollar is also likely to weaken on Fed rate cuts, and geopolitical tensions are high and rising – “both of which are supportive of gold prices.”
Bitcoin vs. gold
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Bitcoin, meanwhile, is benefiting from the prospect of Fed interest rate cuts, a weaker dollar, and geopolitical tensions, said Schenker.
“A swarm of hype locusts have been buying into bitcoin following SEC spot Bitcoin ETF approvals earlier this year and ahead of next month’s redemption halving,” he said. Halving is a mechanism written into the Bitcoin blockchain’s algorithm to control the coin’s limited supply.
Bitcoin exchange-traded funds have performed well since they started trading in January. As of March 7, the iShares Bitcoin ETF IBIT, for example, has seen a net fund inflow of about $9.45 billion since Jan. 12, according to Dow Jones Market Data analysis of FactSet data. Among gold ETFs, however, SPDR Gold Shares GLD has seen year-to-date net fund outflow of $4.15 billion.
Bitcoin is a “digitally native asset,” while gold is a “physical asset” – one that investors can hold in their hand, said Research Affiliates’ Pickard. That’s an attractive quality of gold, he said, so gold prices are going up through physical purchases, while gold ETFs experience outflows.
On the other hand, for many investors, a bitcoin ETF is “a safer and easier way to access bitcoin than to buy the actual coin,” so bitcoin prices are going up through ETF purchases, Pickard said.
Pickard expects bitcoin to lure investors away from gold, with the “lure” being the “media, traditional and social, and word-of-mouth.”
“We are living in an attention economy, and bitcoin gets more attention than gold,” he said, adding bitcoin investors are likely growing faster than gold investors.
Even so, gold and bitcoin can both see prices rise because of “more buying than selling within both markets,” said Pickard. “I expect both assets to go up, but for bitcoin to outperform gold.”
S&P 500 vs. gold
Meanwhile, looking at gold’s changes in value versus the U.S. stock market, or the S&P 500 index more specifically, can help gauge investor confidence.
Comparing gold with the S&P 500 over time can provide “a sense of whether equity investor confidence is rising or falling, and when it might be excessively optimistic or pessimistic,” Jessica Rabe, co-founder of DataTrek Research, wrote in a note this week.
She pointed out that S&P 500/gold price ratio does a “great job of highlighting long-term trends in equity investor sentiment.”
The S&P 500 trading at 2.4 times the price of gold is within one standard deviation of the long run average of 1.6, she said. So “neither stocks nor gold is materially mispriced relative to the other asset based on this long run math,” said Rabe.
Pickard, meanwhile, said that the ratio reading of 2.4, “which it has been around for about 5 years,” indicates that investors are “both equally confident in the S&P 500 and gold.”
A break above 2.75 would indicate increased equity investor confidence relative to gold, while a drop below 2.0 would indicate more investor confidence in gold versus equities, he said.