Bitcoin and Gold Lead the Charge in 2023, Fidelitys Jurrien Timmer Explores Why

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In an unexpected twist, Bitcoin and gold became the best performers of 2023. Jurrien Timmer, director of Global Macro at Fidelity Investments, recently took to Twitter to share his intriguing analysis on the matter.

Timmers’ tweets raise questions regarding the driving forces behind the ancestry of these assets. He wonders if excessive sentiment is the main catalyst or if there are more substantial justifications beneath the surface. From Timmers’ perspective, we could be on the brink of another era reminiscent of the financial repression of eight decades ago, a time when the independence of the Federal Reserve was under siege.

Building on Timmers’ insights, a situation could arise where the urgent need for lower rates to manage the burgeoning debt stock could undermine the Fed’s autonomy. In such an environment, it is conceivable that the dollar will weaken and real rates will again be stifled. These conditions, as Timmer implies, would likely trigger the main drivers of gold’s value. Since Bitcoin is often seen as a turbocharged version of gold, it’s no surprise that Bitcoin is also benefiting from this trend.

Timmer draws parallels between the current situation and the 1940s, a period when crushing debt burdens necessitated devaluation or overshooting of nominal GDP growth. He suggests that below-market rates could once again become a tempting option for policymakers on both sides of the aisle, looking to preserve their purchasing power in the face of the escalating cost of debt. Do these recent market movements in gold and Bitcoin hint at such a trend?

Timmers’ analysis takes us back to a time when the United States adhered to the gold standard, which kept the price of gold at $35 an ounce. As he points out, gold rose from a form of currency to an asset class in the 1970s, a time marked by high inflation and a depreciating dollar. However, the following years saw the onset of disinflation and positive real rates, which diminished the attractiveness of gold and led to a rise in the dollar that lasted into the late 1990s. .

According to Timmer, the wave of inflation that followed, coupled with a long downward trend in the dollar, triggered a rally in gold and commodities in general. This was followed by the global financial crisis, which led to negative real rates and quantitative easing (QE). The cycle repeated itself with the outbreak of the Covid pandemic, causing another surge in negative rates and QE.

Expressing bewilderment, Timmer watches gold’s strong rally despite the Fed’s decision to raise rates further into the restrictive zone. Even a potential Fed pivot, as the forward curve suggests, doesn’t fully explain this strength, he says. The direction of this trend might make sense, but the magnitude of the rally appears to exceed expectations.

Timmer further notes that Bitcoin is now moving in tandem with gold, a trend that has not always been the case. Interestingly, he points out that while the regression for gold is linear, for Bitcoin it is exponential, which fits with Bitcoin’s role as a high-powered inflation hedge. But, like gold, he thinks Bitcoin’s rally, while directionally warranted, appears to be slightly ahead of itself at $30,000.

According to data from TradingView, currently (as of 06:56 UTC May 12, 2023), BTC is trading at around $26,754, up 1.65% in the last 24 hours and up 60.97% since then. the beginning of the year. .

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