By Ian Salisbury

Investors are fearing the worst -- and it's driving up the price of assets like gold and Bitcoin, according to a new report from J.P. Morgan.

It's an anxious world out there: Tensions are flaring in the Middle East, while Russia and Ukraine continue to slug it out with no end in sight. Meanwhile, in the U.S. the presidential election remains a toss-up, while the U.S. debt continues to climb to ever-higher-levels.

These events have spooked investors looking for safe havens outside of traditional stock and bond markets, warns J.P. Morgan. "The rise in geopolitical tensions has shifted attention to alternative asset classes or hedges to a catastrophe scenario such as gold and Bitcoin," a team of analysts led by Nikolaos Panigirtzoglou wrote in a note Wednesday.

Gold has been on a tear, with the price of the metal climbing 29% in 2024. Bitcoin has done even better, rising 37%, although most gains took place in the first three months of 2024, and the price of the crytpocurrency has largely moved sideways since then.

The J.P. Morgan analysts dubbed the twin rally the "the debasement trade, " attributing it to "waning confidence in fiat currencies in certain emerging markets, and to a broader diversification away from the dollar."

The dollar makes up only about 57% of global central banks' foreign currency reserves today, down from more than 70% in the early 2000s, J.P. Morgan notes. Central banks have spent the past two years buying gold, after the U.S. froze Russia's assets at the start of the Russia-Ukraine war. That action made central banks worry their dollar assets would make them susceptible to U.S. political pressure.

J.P. Morgans notes that fewer U.S. retail investors have been putting money into gold exchange-traded funds in recent years, but theorizes that they are simply buying physical gold instead. "Privacy and tangibility have become a more important consideration for private investors since the pandemic and physical gold ETFs have a disadvantage in this respect relative to bars and coins," the analysts said.

When it comes to Bitcoin, J.P. Morgan argues the flows tell a clearer story. "The fact that Bitcoin ETFs started seeing inflows again in September after an outflow in August suggests that retail investors might also see gold and Bitcoin in similar fashion," the team said.

In the past month, investors have poured about $1 billion into Bitcoin ETFs that collectively hold about $59 billion, according to FactSet data.

Write to Ian Salisbury at ian.salisbury@barrons.com

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October 04, 2024 01:30 ET (05:30 GMT)

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