Global turmoil sends gold price to a record high… and bitcoin tops $42,000 for the first time in 20 months

Gold spiked to a record high and bitcoin rose above $42,000 as global assets reacted to an attack on a US warship in the Red Sea and speculation about US interest rate cuts.

On a day of wild swings in the financial markets, the price of the precious metal rose to $2,111.39 an ounce before falling back.

And Bitcoin's surge pushed it past the $42,000 mark for the first time since early 2022.

These moves reflect a complex set of factors driving asset markets, including the outlook for the U.S. and global economies and the potential impact of war in the Middle East.

Gold is seen as a safe haven in times of uncertainty.

And cryptocurrencies like bitcoin — even though they are notoriously volatile — like other risky bets, can look more attractive when interest rates fall.

Crypto is also being boosted by speculation that US regulators will soon approve a spot bitcoin exchange-traded fund (ETF).

That could open up cryptocurrencies to millions of ordinary investors, by allowing them to take a chance through a listed vehicle.

Market sentiment is underlined by the growing sense that a US interest rate cut is coming soon.

Traders yesterday estimated a 70 percent chance that there will be a cut as early as March.

The US Federal Reserve began an aggressive series of interest rate hikes in the spring of last year in an attempt to get inflation under control. But the Fed stopped raising rates over the summer amid mounting speculation that it is done and may start cutting rates soon. prices.

Fed Chairman Jerome Powell's comments last Friday did nothing to dampen speculation.

He made clear he was prepared to raise rates further if necessary, but also said they were “well into restrictive territory” and were doing their job to slow inflation.

Expectations of a US interest rate cut have weighed on the dollar. Hal Cook, senior investment analyst at Hargreaves Lansdown, cited this as one of the factors behind gold's recent rebound.

“This makes gold cheaper for investors using non-US dollars to buy gold and has likely enticed some marginal buyers to invest,” he said.

Another factor is broader uncertainty.

Cook added: 'Heightened global geopolitical risk tends to increase demand for gold and while the likelihood of an escalation of the Israeli-Hamas conflict may have diminished, fundamental geopolitical risks are now greater than they were six weeks ago.

'Finally, a number of central banks have increased their gold reserves.'

The latest spike in gold came as news emerged overnight of attacks on shipping in the Red Sea. Meanwhile, bitcoin's rally suggests the crypto market may finally emerge from the gloom of the past year with the collapse of major platform FTX.

It's well below 2021's record high of $69,000, but it's up more than 150 percent so far this year. Interactive Investor's Victoria Scholar said, “The crypto winter seems to be over for good.”