Key Highlights
- Bitcoin is Dropping
- Gold’s price has surged past $4,000 per ounce for the first time ever, showing no signs of slowing down.
- The massive gold price increase is mainly fueled by huge and rapid inflows into gold-linked ETFs
- While a strong dollar is hurting Bitcoin, gold is defying that pressure
The current market movements show a fascinating split between two major assets often seen as hedges against inflation or economic uncertainty: Bitcoin (BTC) and Gold (XAU). While both are usually sensitive to the strength of the U.S. dollar, they’ve recently headed in opposite directions.
Bitcoin’s Recent Dip and Dollar Pressure
Over the last 24 hours, Bitcoin has experienced a bit of a setback. The cryptocurrency, which had a great run recently, dropped about 2.4% down to $121,340. This decline happened after it failed to push past a key resistance level slightly above $126,000 earlier in the week.
The Impact of the Strong Dollar
A significant factor contributing to Bitcoin’s pressure is the strengthening U.S. Dollar Index (DXY). This index measures the dollar’s value against a collection of other major global currencies. The DXY recently climbed to 98.90, reaching its highest point since early August.
Historically, when the dollar gets stronger (as measured by the DXY), it tends to put downward pressure on assets priced in dollars, such as Bitcoin and gold. This is because a stronger dollar means it takes fewer dollars to buy the same amount of the asset. In Bitcoin’s case, the price chart suggests that if the selling continues, it could potentially drop further, perhaps down to the $118,000 level.
A Brief Detour from the Rally
This recent drop comes right after Bitcoin had a major high, peaking above $126,000 just a few days ago. This record-high surge was largely fueled by tremendous interest in the U.S.-listed spot Bitcoin ETFs, which are investment funds that track the actual market price of Bitcoin. These new funds attracted over $3 billion in investments in the week leading up to the Friday before the news. However, for now, that upward momentum seems to have temporarily stalled.
Gold’s Historic Surge Continues
In stark contrast to Bitcoin, gold is on a tear and showing no signs of slowing down. The price for an ounce of gold has made history, surging past $4,000 for the first time ever. This highlights that while both assets often move together, they can diverge based on specific market drivers.
ETF Inflows are the Key Driver
According to analysts at ING, the main engine powering gold’s phenomenal rally is a massive influx of money into gold-linked Exchange-Traded Funds (ETFs). These are investment products that allow people to invest in gold without physically owning the metal itself.
Investors are buying these gold ETFs at a very fast rate. Last week, the total holdings in these gold-backed funds expanded yet again, pushing the total amount of gold held by these ETFs to the highest level since September 2022. Analysts believe there’s still room for the rally to continue, noting that the current total holdings are still less than the absolute peak reached in 2020. More money pouring into these ETFs is expected to drive gold prices even higher.
Broader Reasons for Gold’s Strength
Gold’s price has effectively doubled in the last two years, reflecting a powerful and enduring trend. Several large, global factors are adding fuel to this fire:
- Central Bank Buying: Central banks across the globe are actively buying large amounts of gold. They do this to diversify their national reserves, essentially trying to hold fewer U.S. dollars and more of the traditional safe-haven asset.
- Global Instability: Major geopolitical tensions are increasing gold’s appeal as a safe asset. Conflicts in the Middle East and Ukraine, along with aggressive trade policies, create uncertainty, which typically encourages investors to seek the reliability of physical gold.
The Rise of Digital Gold
The enthusiasm isn’t limited to physical gold or traditional ETFs. Gold-backed digital tokens, which are cryptocurrencies pegged to the price of physical gold, are also riding the wave. Tokens like PAXG have followed the commodity’s rise, also climbing above the $4,000 mark. The combined value of all these gold tokens in the digital market has now grown to over $3 billion.
In summary, Bitcoin is currently wrestling with a strong dollar and a failed attempt to break resistance, while gold is enjoying a massive, historic rally, primarily driven by substantial investor inflows into ETFs and significant buying from central banks looking for a safe harbor in an uncertain world.
