Gold Approaching ATH at $3,499 Driven by ‘Bull Steepening’ Phenomenon
Bitcoin Could Benefit from Similar Dynamics as Gold, Enhancing its Role as ‘Digital Gold,’ but Remains Hesitant After Reaching Recent ATH Above $120,000
Skepticism around US Fiscal Trajectory and Political Pressures on the Fed Supports Demand for Safe Havens like Gold, and Potentially Bitcoin
Gold inching towards ATH at $3,500 dollars
Gold is once again flirting with its historical peak. The yellow metal now trades around $3,480 per ounce, very close to the all-time high of $3,499 reached last April. In just ten days, its price has jumped over 5%. A resurgence powered not by a sudden rush to safes but by a discreet yet remarkably influential mechanism: the US yield curve.
The ‘Bull Steepening’ Magic
The US Treasury bond yield curve has steepened significantly in August. The spread between 10-year and 2-year yields hit 61 basis points, the highest since January 2022. More strikingly, the gap between 30-year and 2-year yields climbs to 1.30%, the highest since November 2021.
This movement, known as ‘bull steepening,’ is based on a sharp drop in the 2-year yield (3.62%, down by 33 basis points), while the 10-year yield retreats more modestly to 4.23%. In essence, short-term rates plummet faster than long-term rates. And for yield-less assets like gold, this is potent fuel.
Why Gold Shines Again
During the rate hike phase initiated by the Fed between 2022 and 2024, investors shunned gold. Gold-backed ETFs lost nearly 800 tonnes of reserves. Today, as short-term rates ease, the opportunity cost of holding gold vanishes. Result: appetite returns.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, sums up the dynamics:
Lower short-term yields reduce the opportunity cost of gold. For many institutional investors, this finally opens a window to reposition themselves.
A Signal for Bitcoin?
The impact is not limited to gold. Bitcoin (BTC), currently around $109,000, benefits from the same rationale. Like gold, it pays no interest or dividends. Its allure grows when short-term rates drop. Investors see it as an alternative store of value, often dubbed ‘digital gold.’
The resilience of long-term rates also reflects another reality: the persistent fear of stubborn inflation and unchecked US public debt. In such a climate, assets perceived as safe havens, gold leading the way, and Bitcoin following, find a conducive environment. However, Bitcoin is struggling; After hitting a new ATH well above $120,000, digital gold slows down, while its physical counterpart regains momentum.
Inflation, Politics, and Credibility
Yield breakdown into two components: inflation expectations (around 2.45% over ten years) and the real return required by investors. Today, both components signal an increased need for protection against fiscal risk and against potential political pressures on the Fed.
In other words, the market doubts the US’s ability to maintain a credible fiscal trajectory without compromising the central bank’s independence. This environment mechanically benefits gold, but why not Bitcoin as well, gaining legitimacy as a safe haven in a fragile system.
Stock Market Under Pressure
Phases of bull steepening are not neutral for other asset classes. Historically, they coincide with underperformance of stocks and a surge in gold mining companies. Bitcoin, an amalgam of speculative technology and a safe-haven asset, finds itself in a unique position: torn between its correlation with the Nasdaq and its image as digital gold.
The equation is clear: if gold were to break its all-time high in the coming weeks, the movement could drag Bitcoin along, providing the crypto market with a new wave of legitimacy amidst traditional finance tremors. Otherwise, Bitcoin’s appeal as a safe-haven asset would be pushed back once more…
