Insights

What’s really happening in the financial market?

By Paul Reid

07 March 2024

3245 whats happening

In this article, we will cover Exness opinions alongside reporting from Barron’s, which is a commercial partner of Exness.

Are you getting mixed feelings about trading right now? Bitcoin is on the move again, and everyone seems to think this is just the beginning. After all, the BlackRock ETF is now piping institutional money into the crypto space, and central banks all over the world are struggling to paint a rosy picture for 2024. Is it any wonder that big investors might be seeing BTC as a haven to park their wealth? Moreover, the Fear of Missing Out (FOMO) messaging is now circulating the world and prompting traders to buy at a high.

And then there’s gold, making a second push toward $2200 (USD) as the Fed and several central banks continue to give gloomy forecasts for 2024. No matter where you look in the world, there’s a struggle going on. It feels like we’re all avoiding the obvious and somebody needs to say it. 

America is drowning in debt and political discord, and the UK has already crumbled and fallen into a deep recession. The rock-solid nation of Germany is failing along with many other EU countries, and even China can’t hide its downward trajectory anymore. It all sounds like global financial misery is around the corner, but that’s not a fair outlook if you are a serious trader. Traders can profit from economic weakness.

For example, if a large investor or hedge fund suspects an imminent global financial market collapse, they might indeed move assets into gold and bitcoin, as these are viewed as stores of value outside the traditional financial system. That’s how big investors will keep their wealth protected, but there will be some investors who might actually profit from the potential doom.

Cyclic equities are highly sensitive to economic instability. While they often perform well during an economic expansion, be prepared for significant declines during a downturn. Automotive, travel, luxury goods, and technology may present shorting opportunities in the coming weeks and months.

Speculative assets or industries that have been heavily inflated in value without strong fundamental backing (typically tech startups or unproven technologies) could be a risky ‘long’ too.

Company stocks attached to weak balance sheets, high debt, poor cash flows, or inefficient operations are at higher risk, and if/when they weaken, entire indices can falter. Ask yourself which big brand companies are struggling already. If a crash occurs, those will be the ones to watch.

If you just want to protect your wealth, then gold and BTC might be worth investigating, but if a storm is coming, will you want to be safe or profitable? Before you start buying gold and bitcoin, have a read of this excellent article published by Barron’s.


Why Gold and Bitcoin Are Hitting Record Highs—but Won’t Stay There Long

BY PAUL R. LA MONICA | UPDATED MAR 06, 2024 01:15 AM EST

Bitcoin fans often refer to the world’s most valuable cryptocurrency as “digital gold, ” a new store of value for the modern age. And with bitcoin rallying this year back near its all-time high of just under $69,000, crypto enthusiasts have a point. But actual, good, old-fashioned gold hasn’t been a slouch of late either. The yellow metal is now trading above $2,100 an ounce and is also at a record high. Why are both the new and old gold moving higher at the same time?

It’s a bit curious. For one, inflation pressures are starting to recede, so there shouldn’t be a compelling case to buy them as a hedge against rising prices. Gold and bitcoin also tend to get a boost during times of significant dollar weakness, but the U.S. Dollar Index is up more than 2% this year, though it’s relatively safe to call it trendless.

Of course, the recent launch of spot bitcoin ETFs is a major reason behind the crypto surge. Easy access to bitcoin for retail investors through funds from top money managers like BlackRock, Fidelity, and ARK Invest has led to big inflows, pushing bitcoin prices ever higher. But that certainly doesn’t help explain gold’s climb, and may not be enough for bitcoin’s either. “I’m not sure if the bitcoin ETFs are the only reason for the crypto surge,” says John Norris, chief investment officer with Oakworth Capital Bank. “And when you see gold above $2,100, you have to wonder if something else is going on.” 

Norris points to the “general angst” about global events, such as the Russia-Ukraine war, Israel-Hamas military conflict, and recent attacks by Yemen’s Houthis on cargo ships in the Red Sea, as contributors to the twin rallies in gold and bitcoin. “You have to wonder if the spike in gold and bitcoin is more about discomfort around global affairs,” Norris said. “It’s a culmination of people feeling more uncertain about the world around them.”

Gold and bitcoin may have even more room to run because of these geopolitical worries. John Roque, senior managing director of 22V Research, called gold “the king of agita” in a Tuesday report, and recommends investors “trust the current thrust.” He has a $2,444 price target on gold, about 15% higher than current levels.

Central banks are making a bigger bet on gold, too, which is helping push the metal higher. According to data from the World Gold Council released Tuesday, Turkey, China, and India made sizable purchases, adding more than 30 metric tons to their reserves in January. “There is a lot in play right now, says Joe Cavatoni, senior market strategist for the Americas at the World Gold Council. “The geopolitical concerns have led to a more complex landscape and a broader case for gold.” 

Still, some worry that both gold and bitcoin may soon lose some of their luster. A dovish Fed has been one of the most obvious reasons for gold’s strength, says David Russell, global head of market strategy at TradeStation, but it’s no longer clear when the first-rate cut from the Federal Reserve is going to occur. It wasn’t \too long ago that traders were banking on easing in March, but now there are questions about whether the Fed might wait until later this summer to cut—if it all in 2024. “A dovish Fed is the most obvious catalyst for [a] gold bull,” Russell says. “Rate cuts may not happen as quickly as people think.”  

Bitcoin also faces a problem beyond the economy, interest rates, and the dollar. An event known as a halving is set to take place sometime in April. That means that the rewards for mining new bitcoin are cut in half. Some crypto experts have argued that the anticipation of the looming halving event, combined with the new bitcoin ETFs, has helped lead to the enormous price surge in bitcoin this year. But there could be a reckoning after the halving, according to analysts at JPMorgan, who argue that bitcoin prices may plunge to $42,000.

Don’t take our word for it. Gold-mining and crypto stocks have been volatile of late, underscoring how risky it is to bet on either the precious metal or bitcoin. Bitcoin miners Riot Platforms and Marathon Digital have tumbled from recent highs. So have Coinbase and big bitcoin holder MicroStrategy. And even though gold miners have rebounded recently along with gold prices, the VanEck Gold Miners ETF, which owns Newmont, Barrick Gold, and other top mining stocks, is down more than 2% this year and is down 20% from its 52-week high.

So investors need to tread carefully. Bitcoin and gold—and the stocks tied to these two assets—are not for the faint of heart.


Make sure your Exness trading account is funded and active to take advantage of coming market opportunities. 


This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.


Author:

Paul Reid
Paul Reid

Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.