Geopolitical Risks Could Push Investors Towards Gold and Bitcoin

Analysts at J.P. Morgan suggest that rising geopolitical tensions, coupled with the upcoming U.S. presidential election in November, are driving investors to gold and Bitcoin as preferred safe-haven assets in what is being termed the “debasement trade.”

In a note released on Thursday, J.P. Morgan’s Global Markets Strategy team, including Nikolaos Panigirtzoglou, Mika Inkinen, Mayur Yeole, and Krutik P Mehta, highlighted that these assets are benefiting from heightened uncertainty. “Rising geopolitical tensions and the coming U.S. election are likely to reinforce what some investors call the ‘debasement trade,’ thus favoring both gold and Bitcoin,” the analysts said.

Gold Surges Amid Geopolitical Uncertainty and Dollar Weakness

Although gold’s initial response to recent geopolitical events was relatively muted, its price saw a sharp uptick in the past quarter, nearing $2,700 as of September 26. According to the analysts, this price surge has been driven partly by a 4-5% decline in the U.S. dollar and a notable drop in real U.S. Treasury yields by 50-80 basis points. However, they noted that gold’s appreciation exceeds what these factors alone would suggest, signaling a renewed emphasis on the “debasement trade.”

The Debasement Trade: A Hedge Against Inflation and Currency Risks

The “debasement trade” is being fueled by a confluence of factors, including sustained geopolitical risks since 2022, inflationary pressures, widening government deficits, and declining confidence in fiat currencies, especially in emerging markets. J.P. Morgan’s analysts emphasize that these dynamics are prompting investors to seek refuge in assets like gold and Bitcoin, which are viewed as hedges against inflation and currency debasement.

Bitcoin: Digital Gold in Focus

While Bitcoin, often referred to as “digital gold,” has not yet mirrored gold’s recent price gains, historical patterns suggest it could follow a similar trajectory. A recent post by CryptoQuant highlighted that declining U.S. Treasury yields historically boost gold prices, as seen during the 2008 financial crisis when gold prices soared from $590 to a peak of $1,900 per ounce by 2011. Currently, gold has climbed from $2,000 to nearly $2,700, and Bitcoin could experience a comparable rise.

However, CryptoQuant analyst J.A. Maartuun noted a temporary divergence between gold and Bitcoin. “Gold is already profiting from these circumstances, while Bitcoin isn’t, resulting in a current negative correlation between Bitcoin and gold,” Maartuun explained. Despite this, the long-term outlook remains bullish for both assets amid ongoing macroeconomic uncertainty.

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