Gold has just experienced its biggest drop in five years: a staggering 5.7% decrease, bringing its price down to $4,110 per ounce after hitting a historical record of over $4,300 the day before. This abrupt turnaround marked the end of several months of parabolic rise fueled by hopes of rate cuts and geopolitical tensions.
But more importantly, this movement signals a shift: investors may start moving away from the yellow metal towards risk assets, with Bitcoin taking the lead.
Gold Slows Down After New Record
A Rotation Wind Blows Across Markets
Since mid-August, the BTC/gold ratio has dropped by about 35%, its lowest level since April. In simpler terms: gold has significantly outperformed Bitcoin in recent weeks. The precious metal surged by almost 30%, while the leading cryptocurrency dipped by 12%, fueled by a “risk-off” environment and the rush towards safe-haven assets. Digital gold appeared as a mere replica of gold, much to the delight of Peter Schiff.
This surge is explained by an explosive mix: lingering trade tensions, fears of currency devaluation, despite the almost certain anticipation of a new Fed rate cut expected by the end of the month. According to the CME FedWatch Tool, the probability now exceeds 99%.
Central banks and sovereign funds took advantage of this period to strengthen their gold reserves, while the crypto market was temporarily put on hold.
The Return of ‘Risk-On’ Benefits Bitcoin
However, the trend seems to be reversing. This Tuesday, Bitcoin bounced back to $113,800 after a morning low below $108,000. According to Joe Consorti, growth lead at Horizon, this marks the “beginning of an aggressive catch-up phase“. For him, fund managers are reintroducing risk into their portfolios as geopolitical tensions ease and the Fed takes a more accommodating stance.
This renewed appetite for Bitcoin is based on a simple belief: the slightest rotation from gold could have a disproportionate impact on the crypto market.
A Minor Transfer, A Colossal Effect
The gold market is worth about $17 trillion. According to a study by Bitwise, reallocating just 2% of this mass to Bitcoin could push its price above $160,000. A more significant rotation, 3 to 4%, would be enough to double Bitcoin’s current value.
This outlook is not purely hypothetical. Recent history shows that capital movements between gold and Bitcoin often follow monetary cycles: when rates drop, gold shines first, then the market turns towards riskier assets with high potential.
And with the approach of a new round of American monetary easing, the cryptocurrency could once again become the barometer of risk return.
