Is a rotation coming?
Gold prices rose slightly on Tuesday, trading at $4,305 per ounce—within close range of its all-time high in October of $4,381.
This rise reflects a broader flight to safety as investors grapple with uncertain monetary policy and seek to hedge against inflation. With markets pricing in a 76% chance of another rate cut in January, gold's appeal as a non-yielding asset has increased.
Signals of a historical divergence for a potential turning point
The US dollar, which was near its lowest level for the month during the Asian session, provided additional tailwinds for bullion. Gold has risen by more than 64% since the beginning of the year, representing its best annual performance since 1979. Interest rate cuts by the Federal Reserve, continued purchases by central banks, and ongoing inflows into gold-backed exchange-traded funds have driven up the price.
Holdings in gold-backed exchange-traded funds have increased every month this year except May, according to the World Gold Council, highlighting continued investor appetite for this safe-haven asset. As prices decrease, the opportunity cost of holding gold declines, making it more attractive compared to interest-bearing investments.
Meanwhile, Bitcoin's price remains around $86,000 after a sharp slap led to a one-hour long liquidation worth $200 million on Monday. The leading cryptocurrency is still about 30% lower than its peak in October at $126,210. While gold acts as a safe-haven asset in tough times, Bitcoin often trades as a risk asset, suffering outflows as investors seek stability.
The widening gap between gold and Bitcoin has caught the attention of market analysts. Crypto trader Michael van de Poppe noted that the relative strength index of Bitcoin against gold has fallen below 30 for only the fourth time in history.
The technical analysis from the other analyst Misterrcrypto supports this view. It appears that the BTC/Gold pair is testing a long-term upward support line for the fourth time since 2019. The Z-Score is -1.76, in the oversold area, and previous touches at this support level have led to significant rallies.
However, technical patterns do not guarantee future moves. The current macroeconomic environment differs from previous cycles, with inflation remaining high and geopolitical risks continuing to support demand for gold. The extent of investors' shift from gold to Bitcoin remains uncertain.
Macroeconomic factors in focus
Markets are closely monitoring US economic data this week to fill the gap left by a six-week government shutdown. The Bureau of Labor Statistics will release the awaited combined employment reports for October and November on Tuesday. However, key details will be missing — including the October unemployment rate, leading to the first gap in that vital data series.
Economists are forecasting a payroll increase of 50,000 and an unemployment rate of 4.5%, consistent with a slow but stable labor market. Even moderate weakness in the numbers would bolster the case for further interest rate cuts, according to Morgan Stanley strategist Michael Wilson.
The Federal Reserve cut the interest rate by 25 basis points last week but indicated a pause may be on the horizon amid ongoing inflation. However, Federal Reserve Governor Stephen Miran said on Monday that current inflation above target does not reflect the underlying dynamics, emphasizing that "prices have stabilized once again." Investors are currently pricing in a 76% chance of another cut in January.
Technical outlook
Bitcoin options data reveals significant open interest concentrated around the expiration date of December 26, with heavy positions at the $100,000 strike. Analysts are setting a gamma range between $86,000 and $110,000, indicating increased volatility as traders reposition with the year-end approaching.
Silver has more than doubled this year with a 121% increase, from its high of $64.65 on Friday, but it remains close to historical levels. The surge has been driven by tightening supplies, strong industrial demand, and its listing in the US critical minerals list.
As gold approaches new peak levels and Bitcoin consolidates near key support levels, the coming weeks may determine whether the historical divergence between the two assets resolves through rotation — or whether the volatility will increase.
