Scandinavian Capital Markets
Gold continued to rally on Friday, reaching its highest levels since September of 2013 before beating a retreat. The yellow metal powered higher after Wednesday’s FOMC meeting, where the U.S. central bank left interest rates unchanged, but adopted a more dovish stance. The CME Fedwatch Tool currently shows a 100% chance of a rate cut at the July meeting.
U.S. Treasuries rallied on the heels of the Fed news, sending yields lower. Bond yields typically fall when investors expect a rate cut. On Thursday, yields on the 10-Year U.S. Treasury bond fell below 2% for the first time since late 2016.
Analysts attributed the surge in gold to falling treasury yields and a weaker U.S. dollar after the Fed meeting. Lower interest rates makes non-yielding investments such as gold more attractive. Meanwhile, geopolitical tensions in the Middle East escalated following Iran shooting down a U.S. drone on Thursday, boosting oil prices and supporting safe haven assets.
Another major alternative investment, Bitcoin, rallied to its highest levels since April of 2018 in Friday trading. Bitcoin benefited this week from news announcing Facebook’s Libra cryptocurrency. Libra has reportedly secured backing from giants including Uber (NYSE:UBER), Spotify (NYSE:SPOT) and Visa (NYSE:V) and is expected to launch in the first half of 2020. The new coin would allow users to make payments both on Facebook (NASDAQ:FB) and other sites.
An additional bullish factor for bitcoin is that many investors are anticipating a “supply shock” with the bitcoin halvening event in 2020, which will see the daily bitcoin supply cut by half overnight. Bitcoin had a devastating 2018, losing 70% of its value. However, in 2019 it has staged a remarkable comeback, trading 160% higher since the beginning of the year.
