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Gold declines as broader economic pressures mount, while bitcoin maintains liquidity trends.
Increasing real interest rates and inflation uncertainties impact gold, while bitcoin continues its consolidation phase.
Gold vs Money Supply (TradingView)
Key points:
- Gold is approaching a technical bear market despite ongoing geopolitical issues, as heightened interest rate expectations and inflationary pressures from increasing oil prices diminish its attractiveness.
- When adjusted for M2, gold is at historical peak levels, whereas bitcoin remains in a standard consolidation period that has typically preceded new cycle highs.
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Gold is nearing a technical bear market, having declined nearly 20% from its January all-time high. Historically regarded as a safe haven and a hedge against geopolitical instability, gold’s recent performance undermines that perception. In spite of rising tensions in the Middle East, prices have dropped approximately 10% since the onset of the conflict at the end of February.
Markets have also adjusted their interest rate expectations, with rate cuts now largely deferred and policy anticipated to stay restrictive until December 2026. Additionally, increasing oil prices, influenced by geopolitical risk, are exerting upward pressure on inflation, solidifying the prolonged high-rate environment, which poses a significant challenge for gold.
When considering M2 money supply, which encompasses cash, deposits, and other liquid assets, gold is trading close to levels observed during major historical peaks in 1974 and 2011, at $200 and $1,800 per ounce, respectively. On this adjusted basis, gold appears to be maintaining elevated levels, potentially establishing a cyclical floor relative to global liquidity.
In contrast, bitcoin in relation to M2 is in a consolidation phase akin to 2024, while retesting its 2021 highs on a liquidity-adjusted basis. Historically, each cycle has witnessed bitcoin surpassing prior peaks when adjusted for money supply. Currently, with bitcoin still approximately 40% below its October high, this may indicate a typical consolidation range before potential upward movement.
Gold has traded in tandem with bitcoin since it declined from $5,000 on Wednesday, reflecting some degree of positive correlation after previously diverging from the cryptocurrency markets.
