Gold prices have hit a new record high, surging above $2,500 an ounce to $2,531. Rising hopes of rate cuts by the US Federal Reserve could be the trigger for the move. Investors seeking the safety of gold – whose focus has left Bitcoin and other cryptocurrencies in its wake – are driven by concerns of an economic downturn.

Variables That Play a Role in Gold’s Rise

The skyrocketing gold prices can be explained by several factors combined. Anticipation of falling interest rates helped the US dollar to fall, which also increases the appeal of gold to foreign investors. Holding non-yielding assets such as gold loses opportunity cost when the dollar falls, resulting in more buying behavior.

This situation was witnessed when most experts, as well as many other market observers, demanded a 25 basis point rate cut at the Federal Reserve’s September conference.

In addition to the monetary policy perspective, geopolitical concerns, particularly in the Middle East, there has been an increase in demand for gold as a safe haven. Gold became even more attractive as investors sought cover from the ongoing strife and economic turmoil. This was demonstrated by the notable increase in gold-backed exchange-traded fund holdings to their highest level in seven months.

Gold Outperforms Bitcoin

Bitcoin simply can’t hold anything that gold has risen in value. Increasing regulatory hurdles and scrutiny have weighed on the bitcoin market, dampening investor excitement. Conversely, gold seems to be one of the reasons it has performed so well recently, as it is a classic haven in times of uncertainty, attracting more money.

Compared to gold, which people touted as a store of value, Bitcoin has not performed as well as the traditional metal in recent periods. The cryptocurrency is down 16% from its all-time high of $73,740 in March.

While Bitcoin offers great returns, most investors today are driven by stability and security, something that gold has in abundance. In this situation, their different performances highlight a clear shift in the mood of investors, especially now that the state of the economy is still volatile.

Image: DALL-E

Future signals

Market watchers have already begun looking for signals from the Federal Reserve as gold prices rise. Most in demand will be an orientation on future monetary policy, for which Fed Chairman Jerome Powell will be in high demand at the Jackson Hole Symposium.

Investment firms such as UBS are already indicating that, if trends continue, gold prices could reach $2,600 per ounce by the end of 2024. Lower interest rates and persistent geopolitical concerns will undoubtedly ensure that gold remains in demand and is positioned as a store of value.

Gold’s current rise above $2,500 an ounce marks a historic turning point in its investment appeal. Driven by rising geopolitical tensions and interest rate forecasts, gold has remained a top choice for those seeking safe haven investments.

While the outlook for gold is still bright, especially with further guidance from the Federal Reserve on the way, the same is not true for Bitcoin. This development only reinforces that gold remains a viable and stable investment front during times of turmoil.

Main image from Pexels, chart from TradingView