Is gold the first metal to bottom? And is Bitcoin price low enough to outperform traditional risk assets? Bloomberg Intelligence weighs in

(Kitco News) Gold has solid support between $1,600-$1,700 an ounce and could be the first metal to bottom. And Bitcoin is now low enough to start outperforming traditional risk assets, Bloomberg Intelligence said in its November outlook reports.

After finding its bottom, gold could be on its way higher as the U.S. dollar subsides and its power over gold diminishes, according to Bloomberg Intelligence’s senior macro strategist Mike McGlone.

“Gold … has made new highs in euro and yen terms in 2022. Similar highs in dollar-denominated gold is typically a matter of time, and we see the precious as a top candidate to be among the first of the metals to bottom,” McGlone wrote.

Gold’s bearish sentiment will end when the Federal Reserve eases up its most aggressive tightening in 40 years. “The Fed sledgehammer may be building a foundation for the precious metal,” McGlone said. “The most aggressive Fed tightening cycle in about 40 years is unlikely to stop until something breaks, and sharp declines in bond prices and most currencies vs. the dollar may portend an approaching end game.”

On platinum, McGlone said that the metal would take direction from palladium and rhodium. “Palladium’s spike to a record high on the back of Russia’s invasion of Ukraine may prove as enduring as crude oil in 1990, when Iraq invaded Kuwait,” McGlone said. “Resistance around $3,000 an ounce appears more lasting, we believe, than support at about $1,500.”

Spotlight on cryptos

Cryptocurrencies might have dropped enough to start outperforming traditional risk assets, McGlone pointed out. And those not getting partial exposure could be at risk of underperformance.

“Volatility in Bitcoin, Ethereum and the Bloomberg Galaxy Crypto Index has dropped to low levels vs. most other assets, which may tilt risks against those not accumulating partial crypto exposure,” McGlone wrote. “Bitcoin’s price may have dropped sufficiently to outperform most traditional risk assets in a variety of scenarios.”

Crypto gains are likely to resume in the fourth quarter as Bitcoin moves closer in line with gold and trades like a risk-off asset for the remainder of the year.

“Bitcoin’s ascending leading-indicator status and potential transition toward a risk-off asset like gold and U.S. Treasury long bonds may be playing out in 4Q,” McGlone said. “The primary headwind for most risk assets in 2022: aggressive Fed tightening to squash inflation. An indication of divergent strength for the crypto may be that its price of around $20,500 on Nov. 2, with the one-year federal funds future (FF13) signaling rates close to 4.75%, was about the same as it was in June, when FF13 was near 3.5%.”

From a technical perspective, Bitcoin has been building a base at around $19,000. “The greatest number of central banks in history raising rates, and liquidity declining faster than in 2009 and 2015, may signal a drop in inflation as fast as it went up, providing support for gold, U.S. Treasury bonds and Bitcoin,” McGlone concluded.

On Ethereum, Bloomberg Intelligence highlighted the $1,000-$2,000 as its price range, with the potential to once again outperform Bitcoin. “Migration into the mainstream is our takeaway, and once the dust settles from some reversion in risk assets amid inflation pressures, Ethereum is more likely to resume doing what it has been — outperforming,” McGlone pointed out.

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