JPMorgan says geopolitical risk could drive investors to gold and bitcoin

Analysts at J.P. Morgan suggest that increasing geopolitical tensions and November's presidential election are driving investors towards gold and bitcoin as safe-haven assets in what they describe as the "debasement trade."

"Rising geopolitical tensions and the coming U.S. election are likely to reinforce what some investors call the 'debasement trade' thus favoring both gold and bitcoin," J.P. Morgan Global Markets Strategy analysts Nikolaos Panigirtzoglou, Mika Inkinen, Mayur Yeole and Krutik P Mehta said in a note on Thursday.

While gold initially responded more mutedly to recent geopolitical events, its price has sharply risen over the past quarter, approaching the $2,700 level on Sept. 26, the analysts added.

"This increase in gold prices is influenced by a 4-5% decline in the dollar and a significant drop in real U.S. Treasury yields by 50-80 basis points. However, the appreciation of gold has exceeded what these factors alone would suggest, indicating a re-emergence of the ‘debasement trade,’" the analysts said.

Thursday's note said this “debasement trade” is driven by a combination of factors, including heightened geopolitical uncertainty since 2022, persistent inflation concerns, significant government deficits in major economies, and waning confidence in fiat currencies, particularly in some emerging markets.

A recent CryptoQuant post on X echoed these sentiments, highlighting historical trends where lower U.S. Treasury yields led to rising gold prices.

"In 2008, as the 13-week Treasury Bill yields decreased, gold prices soared from $590 to a peak of $1,900 per ounce by 2011," the post said. "A similar trend is emerging now, with gold climbing from $2,000 to nearly $2,700. Bitcoin BTC -2.44% , often seen as 'digital gold,' may follow this pattern."

However, CryptoQuant analyst J.A. Maartuun told The Block that despite the current declining yields and expanding M2 Money Supply, "gold is already profiting from these circumstances, while bitcoin isn't, resulting in a current negative correlation between bitcoin and gold."