Gold hit its highest level in over three years, and Bitcoin surpassed $42,000 mark for the first time since the Terra crash, with investors flocking to these interest-sensitive assets amid a growing expectation that the U.S. benchmark interest rate could fall faster than expected.

According to Bloomberg, the spot gold price was $2,135.39 per ounce on Monday morning, up more than 3 percent from the previous day’s closing price and the highest level since August 2020.

On the same day, Bitcoin briefly surpassed 56 million won ($42,862.61) on the Korean virtual asset exchange Upbit. At major overseas exchanges, the price of Bitcoin surpassed $42,000 during the day, hitting its highest level in the 20 months since April 2022.

The sharp rise in the prices of gold and Bitcoin is attributed to high expectations for a reduction in the benchmark interest rate. Typically, these two assets, sensitive to interest rates, tend to rise in value in response to signals of interest rate cuts.

Bitcoin prices also rose amid expectations that the the first spot Bitcoin exchange-traded fund (ETF) will be approved, along with expectations that interest rates will be cut, leading to a price surge of over 140 percent in 2023 to date. Bloomberg also said that the U.S. Securities and Exchange Commission (SEC) is expected to approve spot Bitcoin ETF filings as early as next month, including one by BlackRock Inc.

The growing expectations for a benchmark interest rate cut were triggered by a statement from U.S. Federal Reserve Chair Jerome Powell on Friday, when he stated that their policy setting is “well into restrictive territory.” The market took Powell’s comment as a signal that interest rate hikes are likely done.

By Yoon Won-sup and Chang Iou-chung

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