Three of the top four investment banks predict a surge in gold prices, Bloomberg: Don't forget about digital gold!

Morgan Stanley, JP Morgan, and Goldman Sachs, three top financial institutions, have all predicted that the price of gold will soar in 2021. Bloomberg's latest research report not only shares the optimism for gold but also speculates that the rising trend of the precious metal may fuel a bull market for Bitcoin.

Top Financial Institutions Bullish on Gold

Top U.S. financial institutions attribute the rise in gold prices to three main factors, including the "potential devaluation of the U.S. dollar," "economic uncertainty," and an increase in demand for "physical gold." In a column published by Morgan Stanley, Chief Investment Officer Lisa Shalett wrote:

"The value of the U.S. dollar may be approaching its peak, and if the dollar weakens, it could be a good time for some investors to consider adding gold to their portfolios."

Morgan Stanley also claims that the nearing peak of the U.S. dollar will increase demand for gold. Goldman Sachs analysts also point out that gold prices could rise to $2,000 per ounce. However, while these financial institutions are bearish on the U.S. dollar due to the Federal Reserve's implementation of quantitative easing policies, according to an article by the Bank for International Settlements, the U.S. dollar still dominates the international currency market, and whether the U.S. dollar will decline in the short term remains uncertain.

On the other hand, global economic uncertainty due to the impact of the pandemic will continue to drive up the demand for gold until economic certainty enters the recovery phase. As Goldman Sachs analysts stated:

"With ongoing depreciation concerns and the impact of low-interest rate policies, the demand for gold investments will continue to grow into the early stages of economic recovery."

Many variables could lead to another economic and stock market downturn. High unemployment rates, declining corporate productivity, or a second wave of the pandemic could all result in an economic recession. According to Morgan Stanley's Chief Investment Officer, if the probability of a U.S. economic recession increases rather than decreases, investors are more likely to reduce their stock allocations and purchase gold as a hedge.

In addition to being a hedge, Nicholas Thompson, Managing Director of Fixed Income at Morgan Stanley, believes that demand for physical gold will also increase during periods of economic turmoil:

"During times of increased uncertainty, there will be an increased demand for physical gold bars and coins, coupled with supply disruptions due to the pandemic, resulting in higher costs to acquire these products (physical gold), as seen during the pandemic."

Bitcoin Shining Alongside Gold

With bullish expectations for gold, many associate it with gold, as indicated in the latest research report by Bloomberg. In addition to predicting a rise in gold prices, the report further suggests that the upward trend in precious metals may fuel the rise of Bitcoin.

Bloomberg's researchers wrote in their latest research report, "June 2020 Edition: Bloomberg Crypto Outlook":

"The long-term correlation of Bitcoin prices with gold, in our view, is a positive for Bitcoin prices. As shown in the chart, Bitcoin has maintained the highest and longest-lasting correlation and Beta coefficient with gold. Based on the same upward factors as gold, the first-generation cryptocurrency (referring to Bitcoin) should continue to advance, with our chart showing a Beta coefficient approaching 2 times that of gold, as precious metals hit an eight-year high, Bitcoin, as a digital version of gold, may continue its upward trend from 2017. Unless gold falls, Bitcoin is likely to reach new highs."

Furthermore, the researchers also pointed out that crude oil experienced massive fluctuations this year, and Bitcoin's lower volatility compared to crude oil demonstrates the maturity of the commodity, indicating that the cryptocurrency market is moving towards mainstream adoption.

Changes in Correlation Emerging

Interestingly, although Bitcoin and gold have maintained a certain degree of correlation in the long term, this situation has changed since the economic crisis triggered by the pandemic this year. The following chart, comparing the SPX/BTC and SPX/GOLD correlations, was compiled by Larry Cermak, Director of Research at blockchain media The Block. Comparison Chart.

From the chart, it is evident that since May, gold and U.S. stocks have turned negatively correlated, while Bitcoin and U.S. stocks continue to maintain a positive correlation. This is not a good sign, as if Bitcoin continues this trend, it is highly likely that Bitcoin will follow the fate of U.S. stocks as global economic uncertainty intensifies.