Investors flee to gold as volatility increases in crypto market
After seeking higher yields and experiencing large swings in recent months, funds are now in the process of switching from cryptocurrencies such as bitcoin to gold as investors value the reliability and stability of the metal. valuable, according to a note from Quantum Mutual Fund.
With a 36% drop, bitcoin recorded its worst monthly drop since November 2018 in May as high valuations, concerns over its environmental impact and regulatory crackdown on cryptocurrencies in China took their toll. Additionally, bitcoin’s fall in May was the second largest since May 2013, according to data available with cryptocurrency CoinGecko tracker.
“The price performance of cryptocurrencies or the fear of running out (FOMO) has prompted many investors to pursue this well-marketed promise of an alternative form of digital currency and has helped push Bitcoin to a record high of nearly 65,000. $. But this upward journey has been extremely volatile given that it is a relatively new asset class with fewer participants and questionable intrinsic value, making it vulnerable to large price swings. and speculation, ”said Chirag Mehta, senior fund manager – alternative investments. – Quantum mutual fund.
In May, gold prices broke above the key psychological level of $ 1,900 an ounce, ending the month up about 8% and turning positive for the year to date.
Much of May’s gold action, according to the fund house, was the result of evidence showing rising prices in the United States and the weakening of its main rivals, the 10-year Treasury yield, the dollar index and bitcoin.
With billions of dollars in stimulus packages spilling over into the real economy in the United States, accelerating vaccine deployments and loose supply chains, higher inflation has become the central theme of the evolution of the economy. market so far in 2021.
“A higher inflationary environment is good for gold, which is seen as a reliable store of value, especially when rates are pegged at zero levels in much of the developed world,” Mehta said.
Global stock markets have been supported by a coordinated effort from major central banks, which have injected trillions of dollars into financial markets since last year while committing to lower interest rates for longer. . But higher inflation could mean a reduction in the easy money policy of central banks.
“Gold’s negative correlation with stocks may increase its appeal to investors in these times of nervous stock markets,” the note said.
According to the fund house, the precious metal should reflect investor concerns over record levels of debt and deficit, foamy financial markets and the emergence of inflation, thus strengthening in the future.
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