Gold and Bitcoin: Safe-Haven Assets Amid Rising Geopolitical Risk

Geopolitical tensions and economic uncertainties are pushing investors to look for safe-haven assets, with gold and bitcoin at the forefront of these discussions. J.P. Morgan analysts suggest that rising global risks, coupled with the upcoming U.S. presidential election, are encouraging a strategy known as the "debasement trade." This approach involves favoring assets that are perceived to retain or increase in value as fiat currencies lose purchasing power.

Gold Surges Amid Lower Treasury Yields and Dollar Weakness

In recent months, gold has seen a notable price increase, driven by several factors, including a weaker U.S. dollar and a significant drop in U.S. Treasury yields. According to J.P. Morgan's analysts, gold prices approached the $2,700 mark by the end of September 2024, highlighting its role as a go-to asset during times of economic uncertainty. The decline in the dollar by 4-5% and a drop in real Treasury yields by 50-80 basis points contributed to this rise. However, the analysts point out that the increase in gold prices has outpaced these economic conditions, signaling a re-emergence of the "debasement trade."

Geopolitical Risk and the 'Debasement Trade'

The term "debasement trade" refers to a strategy where investors turn to assets like gold and bitcoin in response to the perceived decline in the value of fiat currencies. J.P. Morgan's latest report emphasizes that a combination of persistent inflation, large government deficits, and heightened geopolitical uncertainty—particularly since 2022—has increased demand for gold. This trend has been further exacerbated by dwindling confidence in fiat currencies, especially in emerging markets.

Bitcoin's Lag Behind Gold

While gold has been on the rise, bitcoin, often referred to as "digital gold," hasn't experienced the same upward momentum. Recent analysis from CryptoQuant notes that despite similar economic pressures, bitcoin is currently showing a negative correlation with gold. Although both assets have historically been seen as safe havens during economic downturns, gold has been the clear winner in this scenario.

CryptoQuant analyst J.A. Maartuun explained that while gold has thrived under the current conditions of declining U.S. Treasury yields and expanding money supply, bitcoin has not followed suit. This diverges from historical trends, where both assets have moved in tandem during times of crisis, leading to questions about bitcoin’s reliability as a safe-haven asset in the current climate.

Conclusion: A Divided Path for Safe-Haven Assets

As geopolitical tensions rise and global markets remain volatile, investors are turning to tried-and-true assets like gold. However, the mixed performance of bitcoin raises doubts about its role in the "debasement trade" for the time being. While gold continues to benefit from the current economic landscape, bitcoin's future as a safe-haven asset remains uncertain. Investors may need to weigh their options carefully as they navigate these turbulent times.