Gold started surging substantially in March and April 2024 and reached a new record high of $2,401 per ounce. At the time of writing, gold is trading slightly lower at $2,335, as shown in Figure 1. Gold reaching high prices seems reasonable in the current state of the economy. However, the exact timing does not support this breakout. Gold flourishes in high inflation, high uncertainty, and recession ecosystems. High uncertainty is certainly true with continued geopolitical tensions, e.g. Russia-Ukraine, Israel-Palestine-Iran, etc. While there is no recession currently, indicators imply a recession for years now, which is further supported by the growing tensions around the world. High inflation was present, and inflation is still moderately high. Nonetheless, interest rates, even on a real basis, are high, which historically has shown to behave anticyclical to gold. The current view on a “higher for longer” ecosystem, which implicates high interest rates for a longer time, also does not favour gold. While uncertainty and a potential recession are valid reasons for increases in gold prices, it further benefits from the fact that the asset will likely perform well whether there is a recession or not, which not many other assets can claim. Additionally, central banks have been accumulating a lot of gold, especially China and Eastern countries. Perhaps, Eastern central banks have acquired the amount of gold Western countries are ready to sell, which leads to a shortage of supply and increasing prices.
Although oil prices were relatively steady at moderate to high levels over the past year, prices started increasing. Most recently, a potential intervention by Iran in the conflict in Israel led oil to surge further in price. At its peak in 2024, WTI crude oil traded at nearly $88 per barrel, which fell slightly to the current level of $86 per barrel, as shown in Figure 1. This decline is attributed to the current view that Iran has refrained and is expected to continue to refrain from getting involved in the conflict. Nonetheless, geopolitical tensions in the Middle East pose a significant threat to oil supply and could result in price shocks should the current situation escalate. Excluding major escalation, it is likely that oil will remain relatively stable throughout 2024 with limited upside and downside potential. The current economic situation and at least the short-term outlook appear to be beneficial for oil demand. Improved manufacturing data from the US, China, and India boost the requirement for oil. Interest rate cuts on the horizon are likely to boost economies, which also results in higher oil demand. On the supply side, the OPEC+ held the supply relatively tight to maintain moderate to high prices for oil. In case oil should move significantly higher, production would likely increase from the OPEC+, as it would push alternatives which hurts oil's long-term outlook. Nonetheless, in the case of escalations, especially in the Middle East, supply could be constrained, which could result in strongly soaring oil prices that cannot be resolved quickly.
High inflation in the past years has led to strong interventions by central banks. Consequentially, interest rates were increased to levels last seen during the global financial crisis in 2007/08. Inflation has since declined substantially and has reached “manageable” levels. This development led to positive real rates in most economies and led to the question of when central banks would start to lower interest rates. This is especially the case, as interest rates remain at levels set in the summer of 2023 with no movement since then. In March 2024, the Swiss National Bank was the first central bank of the G7 currencies that lowered their interest rates. Interest rates in Switzerland declined from 1.75% to 1.5%. While this is a positive signal for the anticipated rate cuts throughout 2024, it needs to be stated that Switzerland was an exception over the past years. Most Western countries saw inflation rise close to 10% or above. In contrast, Switzerland’s inflation reached a height of only 3.4%. Most likely dates for rate cuts in the remaining economies are expected around June and July 2024 based on the current market sentiment. Inflation in the US, UK, and Eurozone remain relatively sticky around the 3% to 4% mark. It is likely that these central banks want to see a further declining trend in inflation ahead interest cuts. Figure 1 summarizes the development in interest rates and inflation from the beginning of January 2023 to March 2024.
The cryptocurrency market is maintaining the strong momentum it gained at the beginning of the year. Bitcoin (BTC) is spearheading the lead in the space. BTC soared to above $73k as of the time of writing and surpassed its previous high of $68k achieved back in 2021. To date, BTC is up 70% in 2024. The most notable reasons for the strong performance are the spot BTC ETF approval and the subsequent money flowing into BTC. For example, BlackRock now owns more than $10bn in BTC. Another key driver is the upcoming Bitcoin Halving that is anticipated to occur in mid-April 2024. Historically, this event starts the strongest bull run in the BTC cycle. Thus far, BTC was among the best-performing crypto assets in 2024, but Ethereum (ETH) managed to overtake BTC over the past few days and gained 78% in 2024. This development is also akin to prior cycles, when BTC typically initiates the bull run, while other tokens follow BTC and post stronger gains further in the bull run. However, unlike BTC, ETH has not managed to surpass its previous high of nearly $4.9k from 2021. Most recently, ETH surpassed the $4k for the first time since 2021. Figure 1 shows the price development of BTC and ETH from the end of 2022 to March 2024 alongside each token's previous high. Corresponding to these trends is the development of the crypto market capitalization. With the major currencies being close to or above their previous highs, the total cryptocurrency market cap is also close to a new record high. As of the time of writing, the crypto market cap is above $2.7tn, which is slightly lower than its previous high of $2.8tn.
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