Trump attacked, how do risk events affect gold and Bitcoin?

Author: Financial New First Line

On July 14, according to CCTV News, a shooting incident occurred during a campaign rally held by former U.S. President Trump in Pennsylvania on July 13, 2024, local time, where a bullet pierced the upper part of Trump's right ear. One of the shooters has been shot dead by the Secret Service, and another participant at the rally has died.

The related event quickly gained traction, and under the transmission effect of risk events, the performance of the U.S. and global financial markets on July 15 (Monday) attracted more attention.

Recently, due to the uncertainty brought by the 2024 U.S. presidential election regarding monetary policy direction and the rising expectations of interest rate cuts by the Federal Reserve, the price volatility of various financial market assets has intensified. Among them, gold has once again surpassed the $2400 per ounce mark. Following the shooting incident involving Trump, Bitcoin, hailed by supporters as "digital gold," also broke through the $60,000 barrier.

Positive for Gold, But Limited Sustainability

Previously, data released by the U.S. Department of Labor showed that the U.S. CPI rose by 3% year-on-year in June 2024, a decrease of 0.3 percentage points from May; the CPI fell by 0.1% month-on-month in June, marking the first month-on-month decline since May 2020. Excluding the volatile food and energy prices, the core CPI rose by 0.1% month-on-month and 3.3% year-on-year in June.

With CPI data continuously declining, market expectations for a rate cut by the Federal Reserve in September have risen, leading to a strong reaction in the financial markets. Following the release of the relevant data, on July 11, the London spot gold price broke through the $2400 per ounce mark for the first time since May 22. COMEX gold futures saw an intraday increase of nearly 2%, ultimately closing up 1.74%.

According to Wind data, on July 12, the two major gold quotes slightly adjusted, with London spot gold closing down 0.17% at $2410.61 per ounce; COMEX gold closed down 0.24% at $2416 per ounce.

Since March 2024, gold has repeatedly refreshed its historical highest trading price, with COMEX gold peaking above $2454 per ounce in May 2024. However, following the Federal Reserve's decision to slow down interest rate hikes in June and the People's Bank of China's pause in gold purchases for 18 consecutive months, COMEX gold fell to around $2305 per ounce in June.

According to trading rules, the gold spot and futures markets are closed on weekends. After the shooting incident involving Trump, how will it affect gold prices? Yang Haiping, a researcher at the Securities and Futures Research Institute of Central University of Finance and Economics, believes that the impact of Trump's shooting at the campaign rally on the financial markets can be analyzed on two levels: on one hand, this sudden event brings market uncertainty, increasing investors' risk aversion, which may lead to an increased allocation of safe-haven assets, thus potentially being one of the driving factors for gold prices to rise in the short term.

"On the other hand, the shooting incident may increase the probability of Trump's election. Therefore, from a medium-term perspective, the market may position itself based on Trump's policy tendencies," Yang Haiping added.

Zhou Maohua, a macro researcher at Everbright Bank's Financial Market Department, stated that the recent unexpected decline in U.S. inflation and the Federal Reserve Chairman's unexpected statements on interest rate cuts, along with the shooting incident at the U.S. campaign rally, have a generally positive impact on short-term gold trends. The former has triggered market expectations for the Federal Reserve to start a rate-cutting cycle within the year, leading to a decline in market interest rates, which helps reduce the opportunity cost of holding non-yielding gold; while the latter increases uncertainty in the U.S. political outlook, which may bring uncertainty to the U.S. economy and policy outlook in the coming years, increasing market volatility to a certain extent, benefiting safe-haven assets, but the specific impact depends on the actual depth and breadth of the event.

However, Xue Hongyan, vice president of Star Map Financial Research Institute, pointed out that major global sudden events generally benefit gold, but the sustainability of the trend is limited. The unexpected decline in U.S. CPI and the rising expectations for Federal Reserve interest rate cuts are favorable for gold performance. However, gold has already reacted repeatedly to the Federal Reserve's interest rate cuts, so this time the upward momentum for gold is insufficient.

Regarding the next phase of gold trends, Zhou Maohua believes that in the short term, gold still has support, as U.S. consumption and prices are slowing down, and market expectations for the Federal Reserve to start a rate-cutting cycle are rising. Ongoing geopolitical conflicts, uncertainty in the political outlook of Europe and the U.S., along with factors such as U.S. debt risks and the long-term decline in U.S. credit, provide support for short-term gold trends. However, it is necessary to pay attention to the fact that gold is currently at historical highs, and the market has already reacted to geopolitical conflicts to a considerable extent. In response to "sticky inflation," Europe and the U.S. maintain restrictive interest rate levels and a relatively strong dollar, which poses headwinds for gold, and the uncertainty in inflation and policy paths in Europe and the U.S. may exacerbate price volatility.

Bitcoin Surges, Price Volatility Will Be Greater Than Traditional Assets

Under the influence of sudden risk events, in addition to gold, a traditional safe-haven asset that has attracted market attention, the performance of Bitcoin, regarded as "digital gold," has also become a focal point. Earlier, Bitcoin was seen as a financial safe-haven asset that could hedge against global economic uncertainty and rising prices, but from past market reactions, the safe-haven attribute of Bitcoin has not been reflected in various risk events.

Since June, Bitcoin has shown a clear downward trend, consecutively breaking through several thousand-dollar thresholds from a peak of around $71,000, falling to a low of below $55,000, triggering massive liquidations and causing a "plunge" across the cryptocurrency market. Starting from July 9, Bitcoin has rebounded, and after the U.S. CPI data was released, it surged close to the $60,000 mark, followed by a fluctuating downward trend.

On July 14, Bitcoin again attempted to breach the $60,000 mark multiple times amid volatility. According to CoinGecko data, after the news of the shooting incident spread and continued to ferment, Bitcoin's gains expanded, reaching a maximum of $60,347.17 within 24 hours. As of July 14, 14:30, Bitcoin was priced at $60,132.22, with a 24-hour increase of 3.4%.

Yu Jianing, co-chairman of the Blockchain Committee of the China Communications Industry Association, stated that the U.S. CPI's decline in June, the first since May 2020, directly affected market expectations for inflation and monetary policy, providing some support for risk assets, including Bitcoin, and stimulating price increases in the short term. The shooting incident involving Trump further increased market uncertainty. Such events often trigger risk aversion, causing investors to waver between seeking safe assets and high-risk assets, leading to price fluctuations in Bitcoin under the transmission effect of risk events.

"Such political sudden events will inevitably impact the U.S. presidential election, and Trump's support for crypto assets in this election has also led to a certain level of optimism in the crypto market," Yu Jianing added.

Independent international strategy researcher Chen Jia pointed out in a report that as the U.S. presidential election enters a heated phase, major international financial market events are amplifying the situation, and the shooting incident involving Trump has also pushed up market expectations for the valuation of various categories of Bitcoin spot trading and Bitcoin spot ETFs. The domestic regulatory attitude towards Bitcoin and other crypto assets in the U.S. is polarized, and the inherent contradictions in Bitcoin investment demand are also intensifying. If Bitcoin trading price volatility increases in the future, its endogenous political factors will profoundly impact the development of Bitcoin and the entire crypto asset industry.

Yu Jianing bluntly stated that the high volatility of the Bitcoin market itself also amplifies the impact of these external events. Compared to traditional financial markets, the liquidity of the Bitcoin market is relatively low, and market sentiment is easily influenced by news events and market dynamics. This means that when the market faces significant news or economic data releases, Bitcoin's price volatility may be more severe than that of traditional assets. Recent political events also indicate the market's sensitivity to sudden events, and investors need to remain vigilant.