After a weaker start for the dollar, the reserve currency found support in the afternoon as US 10-year bond yields rose, causing non-yielding precious metals to drop. Investors chose to put their money in the racier equity markets and Bitcoin once again, instead of haven metals. Crude oil extended its gains after Saudi Arabia yesterday took one for the team as it unilaterally cut its February and March oil production by 1m barrels per day, allowing Russia to increase output.
Stocks hit new highs
Stocks rose owing to speculation that a Democratic sweep in the Senate could translate to further fiscal support for the economy if needed. The S&P 500 index hit a new record high and the German DAX approached fresh territories
. With the Democrats gaining control of the government, we essentially now have a Washington put as well as the Fed put. Thus, if the economy were to deteriorate further in the coming months, there could be more support from the fiscal side, as well as monetary policy. Therefore, future dips in the stock markets are likely to be bought like before until at least when the Fed signals tightening.
How high will Bitcoin go?
Meanwhile there’s been a lot said about gold and Bitcoin in recent days. I can see why people are calling Bitcoin the gold of the future, or "millennials' gold". After all, its supply is fixed and there is growing demand for it, which is the true definition of something precious. On that basis I think the long-term outlook for Bitcoin will remain bullish, although in the short term, the potential for profit-taking could result in a sharp correction.
Gold could bounce back
In as far as gold is concerned, while its supply is not as limited as Bitcoin and its price not as hot as the digital currency, the yellow metal is nonetheless expected to rise further over time. Investment demand should continue to support gold amid the ongoing growth in supply of cheap central bank money. What’s more, jewellery demand for gold should pick up as the world economy recovers from the pandemic over time. Consequently, I am expecting gold to break to a new record high in the coming months.
Source: ThinkMarkets and TradingView.com
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