Stock markets have taken another wobble after latest figures showed inflation could be set to make a comeback, something which has implications for gold and in turn Bitcoin.

In April UK consumer price inflation more than doubled to 1.5% year-on-year, a sharp jump from the 0.7% figure recorded in March, while in the US consumer inflation rose to 4.2% last month, the largest increase since the 4.9% recorded in September 2008.

That has led stock markets down, with the UK's benchmark FTSE 100 index falling over 1% in mid-morning trading to head well below the 7,000 mark again, as the speed of the jump has caused fears inflation could be making a comeback, and with it eroding consumers’ purchasing power and in turn reducing expectations for corporate earnings growth.

GOLD RALLY CONTINUES

Gold continued a rally that has been in motion since late March shortly after the UK inflation figures were announced this morning, rising to $1,870 per ounce, as the safe-haven asset comes back into vogue with investors due to its status as an inflation hedge.

The shiny metal is now at its highest price in three-months, with investors weighing up the rush to reopen economies with inflationary pressures from a rise in commodity prices, with the likes of copper and iron ore recently hitting all-time highs. Gold is also benefitting from a weaker US dollar.

Like gold, silver is another precious metal which is also in favour with investors and it too has hit a three-month high to $28.75 per ounce thanks to inflation fears, while it is also benefiting from demand for use in areas like renewable energy.

BITCOIN NOT THE NEW GOLD

As cryptocurrency Bitcoin surged at the back end of last year and the start of this year following backing from corporates and institutional investors, there was talk it could act as a hedge to monetary and market risks and that money previously held in gold could be diverted to Bitcoin instead.

But at a time when gold has risen on inflation fears, its price has fallen due to ban on cryptocurrencies in China, potentially quashing the idea it can be the new gold and used as a hedge for stock market risks.

The price of Bitcoin tumbled over 10% and has fallen below $40,000 after China said cryptocurrencies would not be allowed in transactions and warned investors against speculative trading in them.

The country warned Bitcoin’s price fluctuations ‘seriously violate people’s asset safety and disrupt normal economic and financial order’. It comes after the cryptocurrency also took a hit from comments made by Tesla founder Elon Musk on Twitter.

Though Hong Kong’s Bitcoin Association said in a tweet in response to China’s Bitcoin ban: ‘For those new to bitcoin, it is customary for the People’s Bank of China to ban bitcoin at least once in a bull cycle.’

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Issue Date: 19 May 2021