Gold Dips as Markets Brace for Powell's Rate Decision
Thursday was an overall negative trading day for financial markets as asset prices from stocks to precious metals and crypto sank into the red ahead of the highly anticipated comments from Fed Chair Jerome Powell, who will speak at the annual Jackson Hole Symposium on Friday.
Some of the weakness can be attributed to apprehensions about Powell's comments regarding interest rates. Concerns about a recession have also resurfaced in the wake of Wednesday’s adjustment to U.S. labor data, which saw the second-largest downward revision to previously reported data in history.
Amid the mounting economic headwinds, Goldman Sachs has increased the odds of a recession to 46%, up from 29% in April.
“U.S. stock markets have largely been in a bullish phase, anticipating the forthcoming easing cycle,” said analysts at Secure Digital Markets. “Simultaneously, gold has surged, reaching a record high this week. The bond market is also experiencing positive sentiment, with the 10-year U.S. Treasury yield dropping to a one-year low of 3.76% yesterday.”
Thursday saw many of these metrics reverse, with the U.S. 10-year Treasury yield spiking to 3.877% while the DXY hit an intraday high of 101.627. At the close of markets, the S&P and Nasdaq finished lower, down 0.89% and 1.67%, respectively, while the Dow was flat. At the time of writing, spot gold is down 1.17% and trades at $2,482.10 per ounce.
Data provided by TradingView shows that the advance by Bitcoin (BTC) bulls was once again halted by resistance at $62,000, resulting in a retest of support at $60,000.
TradingView analyst TradingShot said that Bitcoin’s price will start to climb toward $100,000 once market volatility quiets down.
“Bitcoin undoubtedly shares a relationship with the Volatility Index (VIX), even though not 100% tight, being a speculative financial asset,” he said. “Naturally, the two are on a negative correlation, meaning that when volatility hits the market and VIX rises, BTC [falls], and vice versa, similar to what happens against stocks.”
“Following the massive volatility spike on the weeks of July 29 and August 05, VIX quickly corrected back to its 1W MA50 (blue trend-line), which has been its pivot line since the Channel Down started 2 years ago,” TradingShot noted. “Bitcoin on the other hand is already significantly above its 1W MA50, as on the week of VIX's aggressive volatility, it managed to test it and held.”
“Opposite to VIX, Bitcoin has been trading on an upward trend, illustrated in today's analysis by a Fibonacci Channel,” he highlighted. “Initially, the 1.0 Fib has been its top but then when broken, it topped on the 1.5 Fib extension.”
“As a result, we expect that when VIX finally closes below its 1W MA50, it will seek its 1-year Support, the Diverging Lower Lows trend-line, and that will propel Bitcoin to its 1.5 Fib extension again,” TradingShot concluded. “If that takes place towards the end of the year, we expect 100k to have been reached.”
At the time of writing, Bitcoin trades at $60,393, a decrease of 1.40% on the 24-hour chart.
Rate cuts will propel Bitcoin to new heights
While the debate about how high Bitcoin could fly in the current bull cycle rages, analysts widely agree that interest rate cuts will be the driving force behind new record highs.
“For those of us who remember how the gradual rate adjustments in 2015-2016 subtly influenced the crypto markets, and the dramatic effects of the unprecedented 2020 rate cut, the current landscape is different,” said Barney Mannerings, Co-Founder of Vega Protocol. “Today, with the widespread adoption of crypto ETFs making digital assets accessible to global institutions and streamlined access available to all types of investors, anticipated rate cuts could exert a much more pronounced impact on the crypto markets.”
“The integration of crypto into mainstream financial products amplifies this effect, potentially reshaping crypto market dynamics in ways we haven’t seen before,” he added. “Drawing on my background in traditional finance, anticipated rate cuts by the Federal Reserve can have far-reaching effects on market dynamics.”
“Historically, such moves often inject liquidity into the financial system, which can drive investors to seek out higher-yield opportunities,” Mannerings said. “For traditional assets, this typically translates to increased valuations.”
“Jerome Powell’s upcoming speech at Jackson Hole will be scrutinized for clues about the Fed's rate decisions, especially in light of the significant 818,000 downward revision in US payrolls—the largest since 2009,” said Jag Kooner, Head of Derivatives at Bitfinex. “This revision signals potential labor market weakness that could influence the Fed's approach. While a 25 basis point (bps) rate cut in September is widely expected, the revised job data raises the possibility of a more aggressive 50 bps cut, as the Fed may act to mitigate faster-than-anticipated economic softening.”
“Despite the downward revision, the broader economic indicators, such as GDP and jobless claims, suggest the economy is not in the same dire state as during the 2009 recession,” he noted. “This mixed data could result in Powell maintaining a cautious tone, emphasizing the Fed’s data-dependent stance.”
Kooner said that if Powell “leans towards acknowledging the labor market's weakening, markets could respond positively to the expectation of a rate cut, leading to a potential rally in risk assets like Bitcoin.”
“However, if he downplays the revision or highlights inflation concerns, the reaction could be more muted, with potential volatility as traders reassess the Fed's trajectory,” he warned. “This speech will likely set the tone for September, and investors should pay close attention to Powell's interpretation of recent data and any hints about the scale and timing of future cuts.”
According to Gracy Chen, CEO of Bitget, recent reports showing a “reduction in recession risk and the Fed's rates are positive drivers for Bitcoin's growth, as easing monetary policy typically supports risky assets like cryptocurrencies and gold.”
“During periods of monetary tightening and economic slowdown, investors usually seek safe, risk-free options for preserving their funds,” she said. “Conversely, when money is cheap in the markets and economic activity is increasing, market participants are more inclined to take higher risks by investing in stocks, commodities, and other assets, including cryptocurrencies.”
“Beyond the Fed's rate cuts, geopolitics remains a significant factor in determining Bitcoin prices,” Chen said. “Ongoing conflicts in the Middle East and Eastern Europe, along with rising tensions between the US and China, suggest that demand for safe-haven assets will continue to support Bitcoin prices in the short to medium term.”
“The upcoming U.S. presidential election in November and positive statements by candidates are also expected to have a favorable impact on the crypto market,” she added. “Additionally, institutions and governments are anticipated to continue increasing their digital asset reserves, which should further support BTC prices.”
Chen said the market is currently “balanced between negative and positive news.”
“Factors such as payments to Mt. Gox creditors and the US government's sale of Bitcoins confiscated from the Silk Road marketplace are putting significant pressure on the market,” she noted. “Buyers lack new momentum, and sellers are hesitant to push the price below $50,000. As a result, we can expect a trading range of $59,000 to $64,000 by the end of August. However, in September, Bitcoin may surpass the $70,000 mark, with its peak price likely occurring in the fourth quarter of this year.”
Altcoin winners and losers
Altcoins traded mixed on Thursday, with a majority of tokens in the top 200 recording gains.
Sun (SUN) was the top gainer, increasing 32.6%, followed by gains of 23.9% and 13.4% for Popcat (POPCAT) and WEMIX (WEMIX), respectively. Convex Finance suffered the biggest loss with a decline of 5.1%, while Curve DAO Token fell 4.6%, and Aave (AAVE) lost 4.2%.
The overall cryptocurrency market cap now stands at $2.14 trillion, and Bitcoin’s dominance rate is 55.7%.
This article originally appeared on Kitco News.
