Recently, the prominent moves in gold, oil, and Bitcoin are apparently benefiting from the macro tailwinds in the wake of the Hamas-Israel war, as risk-off has been dominating the market movements, and haven assets were particularly in favour of safety seekers in the past two weeks. On the other hand, markets priced no more rate hikes this year and a possible rate cut from mid-2024, despite Chairman Jerome Powell’s hawkish reiteration. Some famous hedge fund managers, including Bill Ackman and Bill Gross, spontaneously bet for a bond bottom and caused a sharp retreat in the long-dated bond yields recently. Bond and bond yields move inversely. The US dollar, which usually traces the bond yield movements, showed signs of softening from a 12-month high.
Gold is a risk-off darling
Gold has been known as a haven asset and has been historically used as a hedge against economic uncertainty. During times of market volatility, investors often flock to gold as a safe store of value. The demand for gold increases during such periods, leading to an increase in its price. This can be seen as a negative correlation between the stock market.
Gold inversely moves against the USD, meaning that if the value of USD increases, the price of gold decreases. This is due to the fact that gold is priced in USD, and a stronger dollar means more expensive gold. The inverse relationship between gold and USD has been used as a hedging mechanism by investors. This inverse relationship has been particularly evident during times of economic crisis or recessions.
Technical observations: Spot gold surged more than 7% to a three-month high since the Hamas-Israel war started, surpassing the 100-day moving average for the first time since the end of July. It faces pivotal resistance of around 1,981. A bullish breakout of this level may take it to an all-time high of 2,080. And the potential near-term support can be found at the 50-day moving average of 1,923.
Crude oil surges during war times
Crude oil prices have always been heavily influenced by political events and conflicts, and the Hamas-Israel war, in particular, is no exception. A similar pattern happened during the Gulf War, with crude prices surging 53% between August and October 1990. One major factor was the disruption of supply from the Middle East. The region is responsible for producing a large portion of the world's crude oil, and any conflicts or disruptions in the area can have a significant impact on global supply. Another factor was the fear of potential supply disruptions. With tensions high and the possibility of further escalation, many oil traders were concerned about the safety and stability of supply routes from the Middle East.
Technical observations: Oil futures surged in response to the Hamas-Israel war at the start but lost steam as fears of the geopolitical tension receded recently. WTI futures fell off the 50-day moving average again, indicating growing downside pressure. The potential near-term support can be found at about 80, while the potential key resistance remains at the recent high of 90.
Crude Oil West Texas (WTI), cash, daily
Bitcoin rides on regulatory tailwind, but is Bitcoin a digital gold?
Bitcoin bulls cheered for a potential SEC’s approval on BlackRock’s spot ETF, topping a 17-month high at the end of October. This would allow investors to easily invest in Bitcoin through traditional financial markets, similar to how gold can be traded through an ETF. Bitcoin has often been referred to as "digital gold" due to its scarcity and store-of-value properties. However, unlike gold, Bitcoin is relatively new and still evolving. This means it has not yet reached the same level of maturity and stability as gold. However, Bitcoin positively correlates with gold as both are impacted by the Fed policy and liquidity conditions in relation to the USD’s valuation.
Technical observations: Bitcoin topped the pivotal resistance of 32,000, which may cause the digital currency to head off further resistance of 35,800, then 42,000. However, the recent surge increases the risks of a pullback as it may have been overbought. Profit-taking and sell positions may take the lead in the near term. Potential near-term resistance can still be at about 32,000.
Bitcoin, dailySource: CMC Markets as of 25 Oct, 2023
The US dollar may run out of steam
The US dollar shows signs of declining as the US Fed’s fund rate may have peaked. The recent events, including the Hamas-Israel war, and the party debates on the US government debt ceiling, may prompt the Fed to stop hiking the interest rates, though the rate may stay higher for longer if inflation sticks. The recent US Treasury Department announced a budget deficit of $1.7 trillion, adding to the total of $33.6 trillion. The Fed’s rate hikes leave room for rate cuts when it is necessary to support government funding and bond issuance.
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