The discussion revolves around several interrelated factors: the unprecedented relationship between gold, #Bitcoin , the US stock market, and bond interest rates.
Firstly, the current scenario is witnessing an unusual negative correlation between bond interest rates and gold, previously a positive correlation. This anomaly has sparked concerns.
With gold achieving its best 6-month performance in history, many quickly attribute this to political risks and wars, particularly in the escalating situation in the Middle East, possibly attracting significant buying pressure from nations.
Another factor is the intricate situation with the Fed's interest rates and inflation. While the Fed aims to lower interest rates due to political pressure and recession fears, inflation rates have not decreased in the past 3 months. If the Fed continues to lower interest rates to stimulate the economy, it could lead to higher inflation, putting the Fed in a difficult position.
Charts show the relationship between gold and 10-year bond interest rates, now showing a negative correlation after 17 years. This indicates that investors might be flocking to gold as a safe haven amid economic uncertainty, especially with unclear Fed reactions to inflation data. If bond yields decrease during this time, it's evidence that many seek safe havens with low growth expectations. In this scenario, logically, the Fed should raise interest rates to continue combating inflation, but the market believes the Fed will still lower rates this year due to financial crisis concerns.
Furthermore, the US stock market witnessed a morning decline (DOW down 550 points), and Bitcoin dropped to $67K, mainly due to significant futures liquidation (almost $900 million in the past 24 hours), a long squeeze phenomenon.
Some are questioning why Bitcoin isn't following gold today, considering it as digital gold. However, historically, Bitcoin doesn't follow any asset; it has its own development trajectory. It seems to move independently of other assets (consider two days ago when Bitcoin rose with gold while stocks plummeted, and today, Bitcoin dropped with stocks while gold rose). This complexity is because Bitcoin is both an investment and a store of value, appealing to people for its long-term potential rather than short-term movements.
For those concerned, Bitcoin is still up +83% in the past 4 months since the beginning of the year, outperforming gold by several folds and recently hitting a new peak four weeks ago.
For those dollar-cost averaging (DCA), today is a great day.
We are witnessing many financial market milestones in recent years, indeed a great time to accumulate experience.