Bitcoin and gold lead the charge in 2023, Fidelity’s Jurrien Timmer explores why

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

Timber tweets raising questions regarding the driving forces behind the ascent of these assets. He questions whether excessive sentiment is the main catalyst, or whether there are more extensive reasons beneath the surface. According to Timmer’s perspective, we may be on the brink of another era reminiscent of the economic repression of eight decades ago, a time when the Federal Reserve’s independence was under siege.

Drawing on Timmer’s insight, a situation could arise where the urgent need for lower interest rates to deal with the exploding debt stock could undermine the Fed’s autonomy. In such a setting, it is conceivable that the dollar could weaken and real interest rates could be suppressed again. These conditions, as Timmer suggests, are likely to trigger the main drivers of gold’s value. Given that Bitcoin is often seen as a turbocharged version of gold, it is not surprising that Bitcoin is also benefiting from this trend.

Timmer draws parallels between today’s situation and the 1940s, a period when overwhelming debt burdens necessitated devaluation or exceeding nominal GDP growth. He suggests that below-market interest rates could again become a tempting option for policymakers on both sides of the aisle, who want to preserve their purchasing power amid escalating debt costs. Do these recent gold and Bitcoin market movements suggest such a trend?

Timmer’s analysis takes us back to a time when the United States adhered to the gold standard, which held gold prices at $35 per ounce. As he suggests, gold transitioned from a form of money to an asset class in the 1970s, an era characterized by high inflation and a falling dollar. However, the following years saw the onset of disinflation and positive real interest rates, which reduced gold’s appeal and led to a dollar rally that extended into the late 1990s.

According to Timmer, the subsequent wave of inflation, combined with a prolonged dollar downtrend, led to a rally in gold and commodities in general. This was followed by the global financial crisis, which led to negative real interest rates and quantitative easing (QE). The cycle saw a repeat with the outbreak of the Covid pandemic, which caused another surge of negative rates and QE.

Timmer expresses his bewilderment, noting the robust rally in gold despite the Fed’s decision to raise interest rates further into the restrictive zone. Even a potential Fed pivot, as suggested by the forward curve, does not fully explain this strength, he says. The direction of this trend may make sense, but the magnitude of the rally appears to be exceeding expectations.

Timmer further notes that Bitcoin is now moving in step 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 is consistent with Bitcoin’s role as a powerful inflation hedge. But, like gold, he thinks Bitcoin’s rally, while directionally justified, appears to be a bit ahead of itself at $30k.

According to data from TradingView, currently (as of 06:56 UTC on May 12, 2023), BTC is trading at around $26,754, up 1.65% in the last 24-hour period and up 60.97% year-to-date this year .