Don’t count on bitcoin, gold or the Fed
Analysis by Nicole Goodkind, CNN
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It’s already been a heck of a week for alternative assets, as gold and bitcoin surge. But analysts are cautioning investors to be wary of rushing in. All that glitters, after all, isn’t gold.
What’s happening: The price of bitcoin surged past $44,000 early on Wednesday. It hasn’t been close to this level since spring 2022. That’s when Terra — a popular “stablecoin” that was meant to retain a $1 price point — lost its peg, and when the connected Luna cryptocurrency dropped 99% in a matter of days, bringing down most of the crypto market.
The recent swell in crypto is a result of investor optimism that the Federal Reserve will cut interest rates in 2024 and that the Securities and Exchange Commission will approve a bitcoin-focused exchange-traded fund, making it easier for mainstream investors to get involved. The SEC faces a January 10 deadline to approve the application.
Gold prices, meanwhile, rose to a never-before-seen high of $2,135.40 on Monday as investors price in larger rate cuts by the Fed. Prices fell on Tuesday, but bullion’s value remains elevated.
Crypto and precious metal advocates were gung-ho on Tuesday, claiming that this could be the dawn of a new era, a resurgence in alternative assets.
“Bitcoin is so back,” Tyler Winklevoss, co-founder of crypto exchange Gemini, posted on X. “Bitcoin at 42k is the answer to the ultimate question of life, the universe and everything.”
John Reade, a market strategist at the World Gold Council, an association of gold producers, told CNN that, with investors predicting several rate cuts over the next year, gold prices could “quite possibly” shoot above Monday’s record high.
But a few days does not a sea change make. Advocates may be getting a bit ahead of themselves.
Here’s why.
No interest paid on gold: Yes, gold technically hit an all-time high this week, but there’s some context that needs to come with that statement.
Gold doesn’t pay any interest, so “although we have hit all time highs in nominal terms, we are over 20% below the inflation-adjusted peak seen in 1980,” wrote Jim Reid at Deutsche Bank in a note Tuesday.
So while gold may seem like a great way to hedge inflation, “it only keeps pace with inflation if you buy it at the correct time,” said Reid. “In reality, it trails traditional assets over almost all medium- to long-term time periods.”
A recent study by Deutsche Bank found that since 1800, gold has had an inflation-adjusted return of 0.32% a year. That’s compared to a 3.07% return on Treasuries and a 6.83% return on equities.
“It struggles on a competitive basis,” said Reid. “You can be a long-run inflationist but still be a bit underwhelmed by Gold as an investment.”
Crypto uncertainty: Despite the buzz around the expected green light of a spot bitcoin ETF in January, there’s no guarantee that the SEC will give its nod of approval. And even if it does, there’s no guarantee it will send digital currencies soaring.
While bitcoin has not approached its all-time record of near $69,000, set in November 2021, much of the price inflation comes from investors front-running the SEC’s likely approval, said Antoni Trenchev, co-founder and managing partner of the crypto lender Nexo. That begs the question of whether this is a “buy-the-rumor, sell-the-news event” he said.
There’s a danger that investors will “rush for the exit when it happens,” he said, similar to when the first ETF for bitcoin futures was approved in the fall of 2021 and prices quickly plunged 87%.
Trenchev also pointed out that bitcoin often goes “into reverse” after it breaks key thresholds. “Two weeks after bitcoin pierced $40,000 for the first time during the last bull market in 2021 it sunk below $30,000,” he said.
A cautious Fed: The Fed is probably done hiking interest rates to fight elevated inflation, at least for this cycle. But that doesn’t mean it’s necessarily cutting them anytime soon.
A number of Fed officials, including Chair Jerome Powell, have indicated in recent weeks that it’s still too early to debate rate cuts. Instead, policymakers will focus on whether the current fund rate is sufficiently restrictive.
“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease. We are prepared to tighten policy further if it becomes appropriate to do so,” said Powell during a discussion at Spelman College last week.
Other Fed officials have backed that stance.
“I’m not thinking about rate cuts at all right now. I’m thinking about whether we have enough tightening in the system and are sufficiently restrictive to restore price stability,” said Federal Reserve Bank of San Francisco President Mary Daly in an interview last week. “Discussion about interest rate cuts is not particularly helpful at the moment. We should continue to focus on lowering inflation.”
COP out?
COP28, the annual international climate summit convened by the United Nations in Dubai, is well underway, and it appears that big energy companies are making sure their voices are heard as pressure builds for the phasing down, or even out, of fossil fuels.
What’s happening: More than 2,400 people connected to the fossil fuel industry registered to attend the event, nearly four times the number that signed up for last year’s climate gathering, according to an analysis published Tuesday.
Fossil fuel employees and representatives will outnumber every country’s delegation except for the United Arab Emirates, the host of COP28, and Brazil, according to the report from a coalition of corporate watchdog and climate advocacy groups, including Global Witness.
Sultan Al Jaber, the oil executive who is leading the climate summit, meanwhile, shocked crowds when he said ahead of the meeting that there is “no science” that says phasing out fossil fuels is necessary to keep global warming under a critical threshold. Al Jaber says that his comments were misinterpreted.
“The real outcome of COP28 is that the major crude oil and natural gas producers intend to control carbon capture, green hydrogen production, and alternative energy generation,” said Louis Navellier of Navellier & Associates in a note on Tuesday. “Essentially,” he wrote, “the pace of the green transition will be controlled by major energy producers.”
Naming names: That’s not to say energy companies were totally in the clear. John Kerry, the US Special Presidential Envoy for Climate, was critical of energy companies and even singled out Chevron after the company opted out of a pledge to reduce methane emissions.
“We have no real evidence that [Chevron] and a lot of others are doing what every company needs to do,” he said at the Bloomberg Green summit on Tuesday.
Al Gore was also critical of the fossil fuel industry and called out Exxon Mobil CEO Darren Woods at the summit. “He should not be taken seriously. He’s protecting his profits and placing them in a higher priority than the survival of the human civilization,” he said of Woods.
Still, said Navellier, “the bottom line is green energy is very expensive and the fossil fuel industry will make just enough green energy to appease government regulators, but fossil fuels will persist for the rest of our lifetimes.”
Aluminum tariffs have cost the US beer industry $2.2 billion
New research by the aptly-named Beer Institute, a beer industry advocacy group, found that aluminum tariffs have cost the US beverage industry nearly $2.2 billion over the last six years.
Former US President Donald Trump instituted a 10% tax on aluminum imports from most countries in 2018 under Section 232 of the Trade Expansion Act.
More than 74% of all beer produced in the United States is packaged in aluminum cans and bottles, and aluminum is the single most significant input cost in American beer manufacturing, according to the Beer Institute.
“Brewers and countless hardworking Americans in industries that depend on aluminum have been taking it on the chin for far too long,” said Brian Crawford, president and CEO of the Beer Institute, in a statement. “The reality is that [these] tariffs hurt far more than they help, and they hurt consumers who are already feeling the effects of inflation at the register.”
There are more than 6,600 breweries in the United States. The industry supports about 2.4 million jobs and contributes $409 billion annually to the US economy.
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