Gold Price Reaches Record High, But What Does it Mean for Bitcoin?

The price of gold has reached a record high of $2,564 per ounce, a 10% increase on a quarterly basis. Meanwhile, Bitcoin, often referred to as “digital gold,” is trading at around $58,000, down 7% this quarter. This divergent trend has sparked debate among experts about the future strength of Bitcoin.

According to Charlie Morris, founder and chief investment officer of blockchain asset management firm ByteTree, central banks are buying gold in large quantities. “Gold is becoming more attractive as government bonds become less attractive as a reserve currency. A lot of central banks are accumulating gold. In the past, gold was priced based on inflation-indexed U.S. Treasuries, but now global factors like structural government deficits are playing a role,” Morris said.

Morris believes that gold’s strength is a sign of an increase in money supply, and when the economy recovers or there is news of stimulus, Bitcoin will also rise. “Gold’s strength is present and future. It reflects an increase in money supply, and when the economy recovers or there is news of stimulus, Bitcoin will also rise,” Morris added.

The Impact of Rising Gold Prices on Bitcoin

With the European Central Bank (ECB) cutting rates and the Federal Reserve (Fed) getting closer to a rate cut, economists predict that additional liquidity injections and rate cuts could have a positive impact on the Bitcoin market as well. “The gold rally suggests that real yields on U.S. Treasuries could fall sharply, which could prompt investors to shift money back into riskier assets like Bitcoin and tech stocks,” said André Dragosh, head of European research at Bitwise.

According to TradingView data, the real yield on the 10-year U.S. Treasury note is currently at 1.61%, the lowest in a year. It was as high as 2.52% in October. The Fed’s rate cut is increasing the likelihood that real yields will fall further.

The Difference Between Central Bank Gold Demand and Bitcoin Supply Growth

According to the World Gold Council, central banks bought 37 tonnes of gold in July alone, doubling their net purchases from the previous month. This is the largest amount since January when they bought 45 tonnes. Last year, central banks bought 1,037 tonnes, the second-highest annual purchase on record after 1,082 tonnes in 2022. In contrast, the Bitcoin market has been facing billions of dollars in increased supply in recent months due to Bitcoin liquidations in the German state of Saxony, Mt. Gox bondholders’ repayments, and the U.S. government’s Bitcoin selloff.

Experts’ Mixed Views

According to an analysis by LondonCryptoClub, the relative performance of gold in the short term, based on falling real yields, increased liquidity, and the prospect of a weaker dollar, could be indicative of where Bitcoin might go in the future. However, some experts argue that rising gold prices do not foreshadow Bitcoin strength. “The impact of rising gold prices on Bitcoin is minimal,” said Alex Kruger, partner at digital asset and macroeconomic advisory firm Asgard Markets. “Bitcoin does not move in tandem with gold.”

Additionally, if the Fed announces a 50bp rate cut next week, it could once again shock risky asset markets, and Bitcoin could also plunge again. A 50bp rate cut by the Fed could reignite concerns about the health of the U.S. economy.

“Bitcoin is a risk-on asset, gold is a safe haven asset. Gold likes the system to be cold and interest rates to be falling. Bitcoin, on the other hand, likes the system to be hot,” ByteTree’s Morris said.