CNBC quoted a strategist as saying that gold is still an asset to invest in because prices are still cheap and it can continue to move higher even if it hits $ 1,900 an ounce.
Gold is “relatively cheap” and could rally back to all-time highs
TD Securities head of global strategy Richard Kelly told CNBC that gold had a strong rally throughout last year and “when that reversed, I think some investors got scared.”
At its historic peak, gold was priced at $2,063 per ounce in August last year. However, at the moment, gold is worth about 1,877 ounces. Throughout the first months of 2021, gold has been under pressure as US Treasury yields skyrocketed, leading many to believe that the US Federal Reserve will raise interest rates and adjust monetary policy accordingly.
Traditionally, gold has been seen as a hedge against inflation, but any attempt by central banks to curb inflation often produces an adverse effect on the price of gold. In addition, another point is the relationship between gold and the dollar. Since gold is usually priced in greenbacks, any drop in the dollar will drive the price of gold higher.
“Gold is relatively cheap and it certainly has potential,” Kelly emphasized. “Even if the price of gold hits $1,900 or higher, it still has room for further upside given what we’re seeing.”
Meanwhile, JPMorgan also said that some institutional investors are abandoning Bitcoin in favor of gold. Previously, cryptocurrencies were considered by many to be “digital gold”, capable of avoiding inflation.
Foreign investment funds abandon Bitcoin to return to gold
According to CNBC, a recent JPMorgan Chase report shows that investment funds are moving money from Bitcoin to safer channels like gold, the first time in the past 6 months.
The fact that billionaire Elon Musk, who is often a supporter of cryptocurrencies recently, has inconsistent statements as well as the tightening of management by state agencies, causing the Bitcoin price to plummet in the past week. Since peaking at nearly $65,000 in mid-April 2021, Bitcoin has lost half of its value and dropped to around $35,000 on May 19, 2021.
JPMorgan’s report clearly states that investment funds are withdrawing from the Bitcoin market. Within the past 1 month, the Bitcoin futures market has witnessed its strongest trading since the end of October 2020. The fact that digital currency investment institutions take profits or switch to other investment channels is one of the main reasons for this situation.
Although short-term investors have a negative view of the market, long-term players still have confidence in Bitcoin.
Perhaps it is still too early to say that Bitcoin is selling off, said JPMorgan Chase.
“Rooster” take profit?
JPMorgan’s report indicates that most of the capital outflow came from hedge funds rather than individual players.
The inflow of institutional investors into Bitcoin has been steadily declining in the first quarter of 2021 before Elon Musk’s announcements to accept Bitcoin payments. In the second quarter of 2021, the inflow of institutional investors reversed when they withdrew from the market, in contrast to Bitcoin’s peak in mid-April 2021.
Interestingly, while hedge funds fled the market despite the praises of Elon Musk, individual players still poured money into the market and only showed signs of wavering as Bitcoin depreciated.
JPMorgan Chase did not specify the reason for the move, although noting that Bitcoin is very volatile because it is not under the control of any organization.
“Institutional investors have seen that the upward trend that has been going on for two quarters is over and they have moved away from the rapid decline in digital gold and turned towards the stability of traditional gold. Or, they saw that the price of Bitcoin was too high compared to gold, and they started doing the opposite of what they had done for the last two quarters, selling Bitcoin to buy gold,” the JPMorgan Chase report speculates.
After peaking at more than $2,000/ounce in August 2020, the gold price continued to decline due to profit-taking from investment funds and individual investors.
However, recently the situation seems to change as investment funds are continuously buying. On May 17, 2021, the world’s largest gold trust fund, SPDR, bought 7.57 tons of gold. Generally, in the last 2 trading sessions, this fund bought 11.65 tons of gold.
According to experts, the cash flow from investment funds is signaling a change in investor sentiment towards gold. Before a long time, investment funds almost only sold out, while the amount of gold bought was very small./.