The synchronized movement of the stock market, gold prices, and Bitcoin prices has caught the attention of investors and experts alike. After reaching new highs, all three asset classes witnessed selling pressure in the past week, leaving many puzzled about the reasons behind this unexpected correlation.
According to experts, the selling pressure in the Indian stock market was triggered by the ‘shar test’ suggested by the mutual funds’ body AMFI to the AMCs, following concerns raised by market regulator SEBI about froth building up in small and mid-cap stocks. Additionally, global cues turned negative after the US reported hotter-than-expected CPI and PPI data for February 2024, leading to a sell-off in key benchmark indices.
The disappointing US inflation data also impacted gold prices, as it reduced the probability of a near-term US Fed interest rate cut. Meanwhile, the decentralized digital currency market, including Bitcoin, lacked a clear outlook amid rising geopolitical tensions in the Middle East, prompting profit booking in Bitcoin holdings.
Sathvik Vishwanath, Co-Founder & CEO at Unocoin, highlighted the historical independence of these assets due to their different characteristics and drivers. However, recent market conditions have shown a surprising correlation between gold, equities, and Bitcoin, possibly influenced by macroeconomic events, algorithmic trading, and the search for alternative stores of value.
Edul Patel, CEO of Mudrex, noted that investors were anticipating Federal Reserve interest rate cuts, but the unexpected rise in US inflation disrupted this trend. Despite short-term fluctuations, investors tend to return to the market after assessing the broader economic landscape.
Anuj Gupta, Head of Commodity & Currency at HDFC Securities, attributed the convergence of gold, equities, and Bitcoin to liquidity and momentum. The demand for Bitcoin surged following the boost in demand for Bitcoin ETFs, driven by central banks’ purchases of gold. However, the US inflation data and weak PPI print dampened the US Fed interest rate hike expectations in the near term.
As investors navigate this complex financial environment, it is essential to seek advice from certified experts before making any investment decisions. The unexpected correlation between gold, equities, and Bitcoin serves as a reminder of the interconnectedness of global markets and the importance of staying informed and vigilant in times of uncertainty.
