(Kitco News) – Markets responded positively to the release of July’s Producer Price Index (PPI) report on Tuesday, with cryptos and stocks climbing higher after the PPI showed inflation continues to cool, adding more support to expectations that the Fed will announce an interest rate cut in September.
While market watchers now look to the upcoming Consumer Price Index (CPI) report for further validation, the PPI reading and the fact that Wall Street continues to put the odds of a rate cut at 100% emboldened many investors to jump back into the markets.
As a result, stocks traded higher at the market open and continued to climb throughout the trading day. At the closing bell, the S&P, Dow, and Nasdaq were all in the green, up 1.68%, 1.04%, and 2.43%, respectively.
Gold trended lower after the initial euphoria brought about by the PPI quieted down, and at the time of writing is down 0.28% on the session, trading at $2,466.
Data provided by TradingView shows that after a subdued response to the inflation report, Bitcoin (BTC) bulls went to work in the afternoon and pushed the top crypto to a high of $61,630, where they ran into a wall of resistance from bears.
BTC/USD Chart by TradingView
At the time of writing, Bitcoin trades at $60,700, an increase of 2.69% on the 24-hour chart.
Gold as a leading indicator for Bitcoin
There has been a lot of talk around gold and Bitcoin as strategic reserve assets in recent weeks, largely due to political positioning ahead of the upcoming U.S. elections, and while gold has long been considered a reliable store of value, Bitcoin has struggled to keep up with the yellow metal’s recent rise.
“Bitcoin has underperformed gold during the recent selloff, moving in tandem with tech equities,” wrote analysts at Kaiko. “The BTC to gold ratio, which measures the relative performance of the two assets, dropped to its lowest level since February on Aug. 5, despite inching up slightly since then. When the ratio declines, Bitcoin underperforms, and vice versa.”
“Does this recent underperformance mean that Bitcoin is losing its safe-haven appeal?” they questioned. “While most ETF issuers are pitching Bitcoin as a complement or an alternative to gold, the two assets have different fundamental drivers.”
“This is evident when looking at the 60-day correlation between Bitcoin and gold, which has been fairly weak, oscillating between -0.3 and 0.3 over the past two years,” they said. “Bitcoin’s price has been closely tied to U.S. markets and has largely benefited from increasing institutional adoption following the launch of spot ETFs in January.”
“In contrast, gold has shown resilience to tightening global monetary policy, boosted by strong central bank demand,” they said. “Central bank gold purchases doubled in 2022 and have remained high in 2023.”
According to Charles Edwards, founder of Capriole Investments, based on its past correlation with gold, the outlook for Bitcoin could soon improve as the top crypto has a tendency to lag behind macro moves in gold by a few months.
As a rough rule of thumb, macro Bitcoin trends are often lagged behind gold by a few months. Looks promising. pic.twitter.com/U2KDArxNvS
— Charles Edwards (@caprioleio) August 12, 2024
As shown in the chart provided by Edwards that overlaid XAU/USD on BTC/USD, Bitcoin tends to have a latency period of approximately three months following moves higher in gold.
William Clemente, co-founder of crypto research firm Reflexivity, added support to Edwards’ outlook by comparing the performance of Bitcoin following the launch of BTC exchange-traded funds (ETFs) to the performance of gold after gold ETFs launched in 2004, noting that it took gold price 10-12 months to experience a notable increase.
Interesting chart from @qthomp showing Gold's price action post ETF launch (top) and Bitcoin's (bottom)
Gold had roughly 10-12 months of consolidation before marking up post-launch. If BTC follows, confluence with other factors pointing towards favorable performance into 2025 pic.twitter.com/DA8YbbX1lX— Will (@WClementeIII) August 12, 2024
While it remains to be seen whether Bitcoin will play catch up with gold’s rally, it’s worth noting that both assets have had a banner 2024, with BTC holding the title as the year’s best-performing macro asset and gold not far behind.
“Bitcoin and Gold are now the top performing major assets in 2024,” tweeted Charlie Bilello, chief market strategist at wealth management firm Creative Planning. “Going back to 2011, we've never seen these two in the #1/#2 spots for any calendar year.”
Altcoins extend winning streak
The majority of tokens in the top 200 recorded gains for the second day in a row on Tuesday, with roughly two dozen projects seeing losses.
Daily cryptocurrency market performance. Source: Coin360
GMX (GMX) led the field with an increase of 13.2%, followed by gains of 12.2% for THORChain (RUNE) and 11.1% for Stacks (STX). Convex Finance (CVX) saw the largest decline, falling 6%, while Sui (SUI) fell 5.7%, and Threshold (T) lost 3.1%.
The overall cryptocurrency market cap now stands at $2.14 trillion, and Bitcoin’s dominance rate is 56.3%.
