Why is the stock market, gold price, Bitcoin price moving in one direction?

Nowadays, you will hear a lot of news about the Indian stock market soaring to new highs, gold crossing the Rs. 72000 mark for the first time, and bitcoin also trading at higher levels. Let’s decode this mystery of why the Stock Market, Gold price, and Bitcoin prices are all moving together and what are the factors that drive them to move up.

Gold is traditionally considered a safe asset that is useful in times of economic uncertainty, Stocks, on the other hand, represent ownership stakes in companies. Meanwhile, Bitcoin is a decentralized digital currency that is free from government and bank control and is often considered as a speculative asset.

Usually, gold and equity market returns have an inverse relationship in the short term- if equity delivers good positive returns, gold prices are muted. However, at present, the stock market and the gold price are at an all-time high.

One common factor between these three asset classes making new highs was that investors were anticipating the Fed’s interest rate cuts in June this year.

Gold typically has an inverse relationship with interest rates, when interest rates are low, people start investing in gold because it will offer low-risk returns, thereby leading to a rise in the price of gold, the equity market is up because if the interest rate is cut, it is a sign of a positive economic outlook that indicates the country is thriving towards an expansion and growth mode, thereby boosting investor confidence to invest in the stock market. On the other hand, Bitcoin prices followed an uptrend because of the growing demand for Bitcoin ETFs.

Triggers for gold, equity, and Bitcoins, why is it rising?

STOCK MARKET

1. Pre-election Rally & Stable Government – Market observers believe that a particular party is a strong candidate for the upcoming election this year, which shows a sign of a stable government in the country, which boosts investor confidence to invest in equities to take advantage of earning a good number of returns.

2. GDP Growth – India's GDP growth zooms to 8.4% in Q3. This attracts foreign inflows of funds through FPIs and financial institutions.

3. Government policies: The Indian government's initiatives and policy measures aimed at promoting business growth and investment likely boosted investor sentiment in the stock market.

GOLD

1. Geo-Political Tension – The rising tension in the Middle East countries creates uncertainties, and due to this investment focus, the focus has shifted towards a safe haven like gold.

2. Central Bank buying Gold (especially China) - The Chinese banks and other central banks across the world have been adding substantial quantities of gold to their reserves, which increases the demand for gold, leading to an increase in the price. When many emerging markets are pessimistic about the US dollar as a reserve currency and more optimistic about Gold.

3. Rupee Depreciation - Especially for India, when the rupee depreciates against the dollar, gold prices will go up in India because gold is denominated in dollars. Recently, we have seen the rupee depreciate against the dollar.
   

Bitcoin

1. Bitcoin ETF – The SEC’s approval of 11 spot Bitcoin ETFs in January is a major factor in the recent price surge. As of now, approximately $1.1 billion in inflows have been made, and further it is expected to reach up to $10 billion by the end of this year.

2. Bitcoin Halving – Every four years, the halving is made in Bitcoin. Halving reduces the rate at which new bitcoins are created, making them scarcer, and scarcity leads to a rise in price.
   

Thank you.

Regards,

Pratik Prajapati,

Kautilya, IBS Mumbai.