Gold Closes in On All-Time High as Crypto, Stocks Tumble

In brief

Gold futures are trading within 3% of their all-time high, just $130 away from a new record.
An analyst says gold’s rise is fueled by investor caution and expectations for a December Fed rate cut.
Per their analysis, risk assets look weak because the liquidity effect from ending quantitative tightening is delayed.

Gold is up nearly 1% on Monday, while risk-on assets such as cryptos and stocks are down amid macro uncertainty.

Gold futures contracts are trading at $4,262.35, just 2.95% below their record high of $4,381.44. The precious metal is within $130 of setting a new all-time peak.

Bitcoin’s overnight crash has shrunk the total market cap of all cryptocurrencies by over 6% on the day, from $3.191 trillion to $3.016 trillion. Bitcoin is down 6% on the day and is currently trading at just under $86,000, according to CoinGecko data.

The S&P 500 index is down 0.5% in premarket trading, reflecting bearish sentiment among U.S. equity investors.

Gold’s steady rise in November can be attributed to “growing caution among investors and recently rising expectations for a December rate cut,” Illia Otychenko, Lead Analyst at CEX.IO, told Decrypt.

Gold fueled by Fed speculation

Rising speculation that the next Fed chair will be more dovish is adding to gold’s demand, Otychenko said.

Though the odds of a quarter-point rate hike in December hover around 88% according to the CME FedWatch tool, investors remain cautious amid data gaps following the government shutdown.

Users on prediction market Myriad, owned by Decrypt’s parent company Dastan, assign an 86% chance that the Federal Reserve will cut interest rates by 25 basis points in December, while placing just a 9% chance on Jerome Powell exiting the Fed Chair by year’s end.

“As a result, many are moving away from risk or remain in a wait-and-see mode,” the analyst added, suggesting that Wednesday’s ADP employment report and Friday’s core PCE data will provide “clearer signals on the Fed’s next steps.”

Touching on the Fed ending quantitative tightening, Otychenko noted that “risk assets look weaker because the liquidity boost from ending QT will take time to reach markets.”

Quantitative tightening is a monetary policy shift where the central bank shrinks its balance sheet by reducing the money supply. This is done by allowing assets such as Treasury and mortgage-backed securities to mature without reinvesting principal.