Rédaction Africa Links 24 with Tim Cohen
Published on 2024-03-12 19:50:02
The movement of prices in securities is often influenced by various factors, some of which are more detectable than others. Understanding these underlying forces can be crucial in explaining price fluctuations, but it is important to recognize that some forces may not fully account for the changes observed. The complexity of these forces can lead to overemphasis on certain identifiable factors, potentially overlooking other key drivers.
Two notable assets that have experienced significant price surges in recent weeks are gold and Bitcoin. The price of gold has soared from just above $2,000/oz at the beginning of the year to now threatening $2,200/oz. This unprecedented increase in gold prices has surprised many, as historical levels have never reached such heights. Similarly, the rand price of gold has surpassed R40,000/oz, making old gold mines attractive assets once again.
Bitcoin has also shown a remarkable trajectory, particularly in the last week of February, rising in a manner reminiscent of gold. This raises questions about the common forces driving these supposedly alternative currencies.
One common explanation for the surge in gold and Bitcoin prices is geopolitical risk, as evidenced by gold’s 5% jump following an attack by Hamas on Israel. However, the continued increase in prices suggests that additional factors are at play. Central banks hoarding gold has significantly impacted the demand-supply dynamics, with institutions acquiring substantial amounts of gold in recent years, surpassing the purchases made by ETF investors.
Traditionally, gold prices tend to rise in response to bad news and a decrease in real interest rates. However, the current scenario challenges this norm, as gold prices continue to climb despite favorable market conditions. ETFs are often cited as a reason for Bitcoin’s price increase, as these investment vehicles provide exposure to Bitcoin price movements for ordinary investors. The recent approval of Bitcoin ETFs and the upcoming halving event have contributed to the surge in Bitcoin prices.
One intriguing development in the crypto market is the increasing ownership of Bitcoin by governments. Countries like the US, China, UK, and Germany have accumulated significant amounts of Bitcoin, signaling a shift in perception towards the legitimacy of cryptocurrencies. While the reasons for government ownership vary, it underscores the evolving nature of the cryptocurrency market.
As the dynamics driving the prices of gold and Bitcoin evolve, future price movements remain uncertain. It is common for experts to offer explanations for price declines, but the complexity of these markets often defies simple explanations. As the landscape of financial assets continues to change, understanding the underlying forces shaping these trends remains a challenging yet essential aspect of investment analysis.
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