Here’s why bitcoin and gold are both in rally mode approaching year-end

Bitcoin and gold both rallied during the weekend, pushing up the yellow metal on Sunday to its highest intraday high on record, before pulling back, and lifting the digital asset on Monday up to its highest level since April, 2022.

Both assets rallied on optimism that the Federal Reserve is done with its rate hikes and may start cutting its key policy rate as early as in March next year, according to Mark Connors, director of research at digital asset-management company 3iQ.

Fed-fund futures traders are pricing in an over 50% likelihood that the U.S. central bank will cut its key interest rate by 25 basis points at its March meeting, according to CME FedWatch tool. That is up from 21.5% a week ago. 

The 10-year Treasury yield BX:TMUBMUSD10Y has declined significantly over the past month, down 39 basis points, despite a rise on Monday, according to FactSet data. 

Lower Treasury rates are bullish for both gold GC00, +0.55% and bitcoin BTCUSD, +0.06%, said Greg Magadini, director of derivatives at Amberdata. As neither gold or bitcoin is interest-bearing, high Treasury yields will make such assets less attractive. 

This year, gold and bitcoin have often traded in tandem, including, for example, after the U.S. banking mini-crisis in March and after the Israel–Hamas war broke out in October, Magadini said. 

Still, David Tawil, president and co-founder at digital asset fund ProChain Capital, said it could just be a coincidence that bitcoin and gold rallied at around the same time.

Bitcoin’s rally is mostly driven by optimism that the U.S. Securities and Exchange Commission could soon approve an exchange trade fund investing directly in the crypto, instead of macroeconomic factors, according to Tawil. 

He expects the crypto to continue its rally through the end of year and reach as high as $47,000 by the time when a bitcoin ETF is approved. 

For gold, it’s important to watch the U.S. jobs report on Friday, noted James Harte, analyst at Tickmill Group. 

If the report comes in weaker than expected, it could put further pressure on the U.S. dollar and allow gold to trade higher near-term, and vice versa, Harte noted.

Front month gold futures GCZ23, +0.62% lost $46.90 per troy ounce, or 2.3% to $2024.10 on Monday, according to Dow Jones market data. Bitcoin rose 5.5% over the past 24 hours to slightly below $41,900, according to CoinDesk data.

U.S. stocks closed lower on Monday, with the Dow Jones Industrial Average DJIA down 0.1%. The S&P 500 SPX declined 0.5% and the Nasdaq Composite COMP fell 0.8%, according to FactSet data.