Gold Surges 8% in 2024, Breaks $2,840 Barrier

Spot gold prices surged over 8% year-to-date, breaking the $2,840 per ounce barrier to reach a new high. This significant rally has been driven by a combination of factors, including geopolitical tensions, economic uncertainty, and increasing demand for safe-haven assets.

The precious metal's performance has outpaced other asset classes, with gold being one of the few assets to increase its market capitalization as a percentage of US equities in 2024. This trend is likely to continue, given the current macroeconomic environment and the ongoing interest in gold as a store of value.

Citi Research strategists have highlighted the importance of tracking the correlation between cryptocurrencies and gold. While cryptocurrencies have historically been more correlated with risk assets, such as equities, the strategists anticipate that this correlation will decrease as the crypto market matures and becomes more integrated into mainstream portfolios.

The report also notes that Bitcoin, often referred to as "digital gold," may have the potential to serve as a store of value. However, Citi believes that the term "digital gold" is not yet fully appropriate due to Bitcoin's current tech/equity correlation and high volatility. Bitcoin demand is primarily driven by speculation and optimism for blockchain adoption, and its volatility remains relatively high compared to other traditional financial assets.

Spot crypto exchange-traded funds (ETFs) have attracted significant interest in their first year, driving returns and contributing to the overall growth of the crypto market. As regulatory clarity and broader adoption increase, macro correlations are expected to diminish, leading to more idiosyncratic price movements in the crypto market.

In terms of portfolio management, Citi found that including Bitcoin could historically enhance returns, albeit with increased volatility. Their Black-Litterman analysis indicated that expected annual returns of 8-15% align with Bitcoin allocations of 1-5% in multi-asset portfolios. The strategists recommend price-based filters and rebalancing strategies, such as moving averages and quarterly adjustments, to help manage portfolio volatility.

While neither cryptocurrencies nor equities have served as effective inflation hedges, trend-following strategies could still be valuable, given the speculative interest in cryptocurrencies. As the crypto market continues to evolve, investors should closely monitor the correlation between gold and cryptocurrencies to better understand the potential role of digital