The rally in the gold price recently could signal potentially favorable macroeconomic conditions for Bitcoin in the near future following the liquidity infusion from central banks.
Amid the unfolding macroeconomic conditions, Bitcoin’s BTC $94 807 24h volatility: 0.6% Market cap: $1.88 T Vol. 24h: $19.19 B store-of-value rival Gold aka the yellow metal has continued to make fresh record highs, surging all the way to $2,564 per ounce on Friday, with its year-to-date gains coming to 25%.
During the third quarter, the gold price has appreciated by 10% while Bitcoin’s price has seen a 7% drop and is currently hovering around $58,000. While comparing it to Wall Street’s benchmark S&P 500, which is up by a meager 2% this quarter, Gold has delivered a solid performance.
On the other hand, Bitcoin is currently following up on the macro developments and showing volatility with the Yen carry trading unwinding fears as well as the chances of a US recession. Several analysts believe that the unique factors are currently divergences between Bitcoin and Gold. The rally in the gold price recently could signal potentially favorable macroeconomic conditions for Bitcoin in the near future.
According to Charlie Morris, chief investment officer and founder of ByteTree, gold’s rise is driven by increased central bank accumulation, a benefit Bitcoin has yet to experience. This trend also hints at potential monetary policy easing in the future. Speaking to CoinDesk, he added:
“The appeal of government bond in reserves is lesser and gold has stepped up. Many central banks are accumulating gold, which used to be priced off U.S. Treasury inflation-protected securities but is now being influenced by global factors like structural government deficits. “The strength in gold reflects increasing current and future [fiat] money supply, among other things, and bitcoin will rally when the economy picks up or when the sound of stimulus is heard.”
Why Money Will Flow Back into Bitcoin?
Considering the year-on-growth, the combined fiat money supply from the US, Eurozone, UK, and Japan turned positive by the end of August. With central banks planning to shift towards liquidity easing, the money supply can continue to expand.
Last Thursday, the European Central Bank cut interest rates, with the Federal Reserve expected to follow suit next week, signaling the start of an easing cycle that could lead to increased stimulus for US investors.
André Dragosch, head of research in Europe at Bitwise, noted that gold’s recent rally suggests a sharp decline in inflation-adjusted US government bond yields. Historically, such a drop in real yields prompts investors to shift capital into riskier assets, such as bitcoin and technology stocks, as seen in 2020. Speaking to CoinDesk, Dragosh said:
“Gold prices have completely decoupled from US real yields. This implies two things: Either gold is overpriced, or gold is already anticipating a massive decline in US real yields. A massive decline in US real yields is equivalent to a sharp easing in monetary policy, which is not yet priced more broadly into financial markets except in gold, which is why bitcoin and other assets might follow gold higher.”
On the other hand, central banks have been on a gold-buying spree purchasing 37 tonnes of Gold in July. This is the highest monthly purchase since January when the net purchase was 45 tonnes.
Alex Kruger, partner at digital assets and macro advisory firm Asgard Markets, urged investors not to overinterpret the implications of gold’s rally for Bitcoin.
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