(Kitco News) – Bitcoin's recent breakout coincided with the U.S. Treasury’s bond buyback announcement, and while gold ETF demand remains strong, higher-for-longer Fed rate expectations are capping the non-yielding metal’s gains, according to Fiona Cincotta, Senior Market Analyst at StoneX.
“August the 19th was an important turning point for bitcoin, coinciding with the US Treasury Department announcing plans to increase buybacks for long dated government bonds,” Cincotta said in a recent video analysis. “Bitcoin's fortunes appeared to change dramatically around the same time. On that date the price broke above $65,000, subsequently rising to this week's high of $87,000. That's a 35% increase.”
Cincotta also pointed out that over the same period, U.S. bitcoin ETFs also saw around $4.6 billion in net inflows, pushing bitcoin ETFs into positive territory for the year. “Bitcoin is up 44% so far this quarter,” she said. “This contrasts with other major assets quite sharply. Stocks have gained around 3.5% across the same period, whilst gold is up only 8%.”
She cautioned, however, that this is not a case of investors abandoning gold. “If we look at gold ETF demand, that has also remained exceptionally strong, with the August recording the second largest monthly global ETF inflows on record,” Cincotta said. “Gold, however, does face a more challenging backdrop from renewed expectations that the Federal Reserve could remain hawkish for longer. The higher for longer interest rate expectations and elevated Treasury yields increase the opportunity cost of holding a non-yielding asset such as gold, and that's really limiting the upside to the precious metal despite continued demand that we're seeing.”
Cincotta said that in the current market environment, the debasement bid favors bitcoin over gold. “The timing of that Treasury announcement on August the 19th has been very stark, coinciding with the breakout of bitcoin,” she said. “Also, stronger ETF inflows and renewed appetite for hard assets have all coincided with the improvement in bitcoin's momentum.”
She also noted that the Fed is considering further rate hikes, which also supports hard assets. “Now, normally you would expect gold to benefit as well, but this isn't bitcoin replacing gold,” she said. “It just seems that the same macro trade is actually producing a larger marginal move in bitcoin.”
Cincotta said it’s important to recognize that bitcoin is actually playing catch-up from a much lower base than that of gold, and that the move also coincides with bitcoin's four-year cycle.
“Just taking a look at the bitcoin:gold ratio reinforces the point,” she said. “The ratio has climbed to 19.89 at the time of recording, and this is the highest level this year. In simple terms, that means that one bitcoin now buys almost 20 ounces of gold. What this shows us is that bitcoin is increasing in value not just against the U.S. dollar but also relative to the precious metal.”
Cincotta said she’s looking for a move above the 50-day Simple Moving Average to confirm and reinforce bitcoin’s outperformance relative to gold. “Buyers will be looking for a move above the $87,000 level, the peak that we saw this week, to bring $90,000 into focus,” she said. “A rise above 90,000 will quickly turn attention to that key $100,000 psychological level.”
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