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

(Kitco News) Gold has solid support between $1,600-$1,700 per 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 bottoming out, gold could be headed higher as the US dollar declines and its power over gold diminishes, according to Bloomberg Intelligence senior macro strategist Mike McGlone.

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

Gold’s bearish sentiment will end as the Federal Reserve eases its most aggressive tightening in 40 years. “Fat sledgehammers can build a foundation for the precious metal,” McGlone said. “The most aggressive Fed tightening cycle in some 40 years is unlikely to stop before something breaks, and sharp declines in bond prices and most currencies against the dollar could herald an impending endgame.”

On platinum, McGlone said the metal would take direction from palladium and rhodium. “Palladium’s surge to record highs on the back of Russia’s invasion of Ukraine may prove as durable as crude oil’s 1990 invasion of Kuwait,” McGlone said. “Resistance around $3,000 an ounce looks more durable, we think, than support around $1,500.”

Spotlight on crypto

Cryptocurrencies may have fallen enough to start outperforming traditional risk assets, McGlone pointed out. And those who do not get partial exposure may be at risk of underperformance.

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

Crypto gains are likely to resume in the fourth quarter as Bitcoin moves closer to gold and trades as a risk asset for the rest of the year.

“Bitcoin’s rising leading indicator status and potential move towards a risk-off asset such as gold and US Treasuries could play out in 4Q,” McGlone said. “The primary headwind for most risk assets in 2022: aggressive Fed tightening to stem inflation. An indication of divergent strength for the crypto could be the price hovering around $20,500 on November 2, with the one-year federal funds futures ( FF13). signal rates near 4.75%, was about the same as in June, when FF13 was near 3.5%.”

From a technical perspective, Bitcoin has built a base around $19,000. “The largest number of central banks in history raising interest rates, and liquidity falling faster than in 2009 and 2015, could signal a fall in inflation as quickly as it rose, giving support for gold, US Treasuries and Bitcoin,” McGlone concluded.

On Ethereum, Bloomberg Intelligence highlighted $1,000-$2,000 as its price range, with the potential to once again outperform Bitcoin. “Migration to the mainstream is our takeaway, and when the dust settles from any risk asset regression amid inflationary pressures, Ethereum is more likely to continue to do what it’s been doing – outperform,” McGlone pointed out.