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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Well, we did warn you that it would be volatile. Rather than sustaining Monday’s rebounds, tech stocks fell hard yesterday — the Philly semiconductor index was down as much as 9 per cent at one point, and the Nasdaq by 4 per cent — before recovering some ground in the afternoon. Pour one out for the momentum traders and algos, and email us: [email protected]
Today, I take a look at the end (?) of the great gold rally, while Hakyung kicks the tyres on gold’s digital cousin bitcoin.
Gold
There was a happy time when the gold price made a certain amount of sense.
In the good old days, you could rely on it to rise in times of severe geopolitical or market stress, as people sought a haven. Sure, you can paint your own adventure on to gold, and make a case for buying it when yields are falling (less opportunity cost for buying a non-yielding asset); or when yields are rising (dollar debasement, inflation hedge); or honestly whatever you like. But you knew that gold loves fear, fear loves gold.
The past year or two, however, has been weird. As I’ve written (and said), gold has been behaving much more like a risk asset, a chancy bet rather than a safe retreat. As central bank buying gave way to retail excitement, the traditional inverse correlation between gold and real interest rates broke down. Exuberance, not fear, drove gold and silver up to extraordinary heights at the start of this year — $5,500 an ounce for gold; $120 for silver. The outbreak of war in Iran seemed to play a part in breaking gold’s momentum, as it did for other risk assets.
Just when you thought you were on top of gold’s last regime shift, though, it seems to have had another. Stocks recovered from the Iran shock, and then some, but gold is stuck in a rut. And in the past few days, as tech stocks have been whacked, gold has been whacked with them. Tails you lose, heads you also lose?
Certainly, flows into gold ETFs have declined sharply, as this chart from the World Gold Council shows:
Citi’s Max Layton makes sense of it like this:
We stay cautious near-term on gold with a 0-3 month point-price price target of $4,300/oz as inflationary pressure from [the] continued Strait of Hormuz impasse leads to increasing market expectation of Fed rate hikes, weighing on gold prices through higher real rates and strong US dollar.
Prices could fall well below this level on a major risk-off event (recall we were trading at 3,400/oz only 12m ago). The historical negative correlation between US real rates and gold prices severely weakened during the central bank-driven gold rally of 2022-24 but has recovered on increased non-CB investor participation. Short-term selling pressure on gold can intensify on US-Iran re-escalation (not a base case) and/or major equity sell-off.
Joni Teves at UBS doesn’t see a recovery any time soon, as the old relationship with real rates reasserts itself:
Gold’s negative relationship with US real rates and the dollar has become stronger of late. Meanwhile, gold has been moving with a strong positive correlation with equities and a strong negative relationship with oil. For now, it is difficult to see what could break gold out of the recent range. While it is encouraging to see speculative positions quite muted, there is also little evidence of appetite to rebuild exposure materially at the moment.
I’m minded to think the fizzy speculative moment has passed and it’s likely to go nowhere for a while.
(Martin)
Bitcoin
Bitcoin has stabilised somewhat this week after falling below $60,000 for the first time since 2024. But at $62,000, it’s a long way from its 2025 high just above $126,000:
One basic problem: money is leaving Bitcoin ETFs. Chart courtesy of Gabriel Selby at CF Benchmarks:
Crypto defenders are quick to say that the sell-off is prompted by the prospect of higher-for-longer interest rates, which will kill speculative appetite. “The prime mover is macro . . . Bitcoin is trading as a high-beta read on Fed tightness, and that can persist,” according to Selby.
It didn’t help that Michael Saylor’s Strategy, the largest bitcoin treasury company, sold a small amount of bitcoin last week, for the first time since 2022. It was a small amount (32 coins, for $2.5mn), but notable for a company that has repeatedly insisted that it would “Hodl,” and that you should, too (the company resumed purchases on Monday).
It’s hard for us to take this argument very seriously. The increased probability of rate rises doesn’t justify the digital currency stepping off a cliff while the rest of the (rate sensitive) market powered higher in May. When we wrote about the crypto winter in December, when bitcoin was still trading at about $90,000, crypto defenders had pointed fingers for its decline at the Bank of Japan’s rate increase and the unravelling of the yen carry trade. Rates and liquidity are always the convenient explanation when bitcoin falls, but the real issue is that it has no fundamental value.
Unhedged has long thought that bitcoin is a purely speculative asset. Are retail investors coming around to our view? Maybe, but a more likely explanation is that the retail risk junkies are speculating elsewhere. Last week, our colleague Jill Shah reported:
“Retail is completely gone from the market,” said Jasper de Maere, strategist and trader at Wintermute, a crypto trading company. “Those investors are pivoting back into equities.”
In tech and AI, from SpaceX to the chip companies, there is plenty of action — and a fundamental story that, while a little inflated, at least makes basic sense. Who needs bitcoin?
(Kim)
One good read
“Bit mad, but there you go.”
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