Key facts: Both gold and bitcoin have set new all-time highs in 2024. Bitcoin is considered by many to be “digital gold.” There are expectations that the price of gold will continue to rise, which may have an impact on the bitcoin (BTC) market. “Gold is preparing to gain ground,” says market researcher Paul Wong. In a report on the subject, he details three factors that motivate a favorable performance for gold. These are the Fed interest rate cut, the BRICS+ meeting and the uncertainty about the US elections that affect the value of the dollar. He specifies that the expected rate cut in September by the Fed, the US Central Bank, lowers the value of the dollar against other fiat currencies. In this scenario, he maintains that the BRICS+ will meet to encourage many central banks to hold more physical gold as reservesBRICS+ is an association between ten emerging countries to maintain economic cooperation. The name of the formation are the initials of the original members: Brazil, Russia, India, China and South Africa. Although, this year, the symbol + was added to the term for the integration of Saudi Arabia, Egypt, the United Arab Emirates, Ethiopia and Iran. The next meeting of the BRICS+ group will take place in October 2024. Meanwhile, adds Wong, the US presidential elections, scheduled for November, bring uncertainty and anxiety to the stock market. “To combat the growing total global debt of 306 trillion dollars, a new fiat monetary structure is updated in which gold remains the most important form of money according to central banks,” highlights the specialist. In this scenario, the value of gold, an asset that usually acts as a refuge in crises, has been on the rise. This happens while, as seen below, the dollar index (DXY), which shows its value against other fiat currencies, declines. According to Wong, this is a consequence of many central banks increasing their gold reserves.
The price of gold is shown in orange and the DXY in purple. Source: TradingView. According to the market researcher, if the dollar index falls by around 3% in the next six months, gold is likely to rise by 6% above its trend. In such a case, he projects the price of the precious metal at levels between 2,675 and 2,800 dollars (USD) in 3 to 6 months. Currently, Gold is trading at around USD 2,500, after having reached a record high of USD 2,528 last week.. “The recent depreciation of the dollar against physical gold reflects and exposes the weakness of the fiat system,” Wong emphasizes. The specialist assures that the main culprit is the growing fiscal deficit, which triggers more total records of Treasury bonds. According to his view, The link between the rising price of the precious metal and its national reserves reveals the flaws of the current fiat monetary system“Central banks are increasing gold reserves to combat global debts, which highlights the role of gold in maintaining fiat currency discipline,” he stresses. In addition, he indicates that downward adjustments to economic statistics, such as the latest employment figures, foster distrust. Therefore, he believes that gold will rise in the long term. Although the specialist does not mention bitcoin, this asset could have a positive impact if his projections come true. This interpretation is based on the concept of this currency as “digital gold.”
Bitcoin is considered an improved version of gold
Both bitcoin and the precious metal have a limited supply and decentralized mining. These attributes facilitate its price increase in response to demand, unlike fiat money, which can be issued indefinitely at the discretion of each government, increasing its supply. It is because of such comparisons that many investors call bitcoin “digital gold.” It is even considered by many to be an improved version of the precious metal due to its resistance to censorship and the possibility of transferring it freely and at low cost. In this sense, If the narrative of bitcoin as enhanced digital gold grows, it could increase its demandeven by central banks. In fact, as BitcoinDynamic reported, Republican candidate Donald Trump has promised to maintain national reserves in said currency if he wins the elections in the United States. However, it should be noted that, in the last two months, bitcoin has been showing a greater correlation with stocks than with gold. These are in a corrective lateral period, as seen below. Although, bitcoin is in such a phase since the historical maximum it registered six months ago.
The price of Bitcoin is shown in orange and the SPX, an index that compiles the shares of the main 500 companies in the United States, is shown in violet. Source: TradingView. Therefore, closely following its movements, in relation to other assets and the moves of central banks, seems key to identifying the behavior that Bitcoin will follow.