88% Probability of Rate Cut: Why Is Bitcoin Declining While Silver Rises?

As expectations for U.S. interest rate cuts rise, precious metals achieve significant gains, while the cryptocurrency market faces setbacks due to ETF outflows and broader economic challenges.

Key Takeaways

Precious metals like gold and silver are rising due to anticipated interest rate cuts and supply constraints.
Silver's price has more than doubled this year, driven by strong industrial demand and supply shortages.
Bitcoin is experiencing a decline, influenced by ETF outflows, recent market hacks, and global economic fears.
The cryptocurrency remains sensitive to fund flows, unlike precious metals which are benefiting from unique supply factors.

Gold prices reached a six-week peak on Monday, while silver achieved an all-time high, fueled by increasing anticipation of interest rate reductions by the Federal Reserve and a depreciating dollar.

Silver Soars Amid Supply Restrictions

Spot gold rose to $4,241 per ounce, marking its highest price since late October. Simultaneously, silver hit a record high of $58.83 before experiencing a slight fall. This "white metal" has more than doubled in value this year, significantly outpacing gold’s notable 60% increase.

The main catalyst for this upward trend is the heightened expectations for Federal Reserve rate cuts. Data from CME FedWatch indicates that traders currently assign an 87.6% chance of a 25-basis-point rate cut during the Federal Reserve's meeting on December 10, leaving only a 12.4% likelihood that rates will stay the same.

In addition to these monetary policy expectations, silver is experiencing a supply squeeze. A historic shortage in London last October resulted in record amounts of the metal being drawn into trading hubs, depleting supplies elsewhere. Recently, warehouses linked to the Shanghai Futures Exchange reported their lowest levels in nearly ten years, while short-term borrowing costs for silver remain high.

The industrial demand for silver is increasing, particularly in sectors like electronics and renewable energy. Manufacturing solar panels, which require significant amounts of silver, is supporting continued strong demand. Alongside investment flows looking to hedge against inflation, these factors have driven silver's price upward.

Historically, silver's value has shown a robust long-term trend. Over the past five years, prices have increased by 135.79%, and over the last 20 years, they've risen by 563.06%. This pattern reflects both recurring economic cycles and sustained industrial demand.

Source: CME FedWatch

Additionally, the dollar's dip to a two-week low has made precious metals more attractive to holders of other currencies. Encouraging dovish statements from Fed officials, such as Governor Christopher Waller and New York Fed President John Williams, have solidified expectations for ongoing monetary easing.

Bitcoin Goes Against the Grain

In contrast, Bitcoin, frequently referred to as "digital gold," is moving in an opposite direction. The leading cryptocurrency has dropped to around $86,000, which represents a decline of approximately 30% from its all-time high of nearly $126,000 in October.

Several factors contribute to this unexpected trend. U.S.-listed Bitcoin ETFs experienced about $3.4 billion in net outflows in November, reversing previous inflows. A recent $9 million hack of Yearn Finance on December 1 unsettled the decentralized finance (DeFi) ecosystem, while remarks from Bank of Japan Governor Kazuo Ueda regarding a possible rate hike raised concerns about the unwinding of global carry trades. Moreover, over $1 billion in leveraged crypto positions were liquidated during the recent market downturn.

Many had anticipated that Bitcoin's price movements would mirror those of gold.

Sorry, it appears events have taken an unexpected turn. 😬
— DOMBA.eth 🐺 (@DombaEth27)

Despite gold, silver, and Bitcoin being non-yielding assets, precious metals benefit from distinct bullish drivers, such as physical supply constraints. Conversely, Bitcoin is more significantly affected by ETF fund movements and leveraged liquidations.

While expectations of rate cuts are generally positive for Bitcoin's performance in the medium to long term, prevailing short-term challenges are currently exerting a stronger influence.