Gold’s Rally Pauses as Risk Appetite Returns
Gold’s impressive eight-week winning streak came to an abrupt halt this week, with the precious metal falling more than 6% from its record high above $4,380 per ounce. The pullback settled around $4,120 by the weekend, marking the first significant decline in what had been a parabolic rally. This retreat was driven by several factors that collectively eased the safe-haven demand that had been supporting gold’s ascent.
Profit-taking played a major role, as traders locked in gains after the metal’s extended run. Heavy outflows from gold exchange-traded funds also contributed to the downward pressure. But perhaps the most significant factor was the shift in tone around US-China trade relations. Officials from both countries announced they had reached a “preliminary consensus” on key trade issues, effectively removing the threat of 100% tariffs on Chinese goods that had been fueling gold’s climb.
Fed Expectations and Market Shifts
The softer macroeconomic backdrop, combined with widespread expectations that the Federal Reserve will cut interest rates by another 25 basis points this week, took additional shine off gold’s rally. Silver and platinum followed suit with sharp declines, signaling a broader reset in precious metals ahead of Wednesday’s Fed decision. This shift in sentiment has created an interesting dynamic in the markets, particularly for alternative assets like Bitcoin.
After lagging behind gold for most of the quarter, Bitcoin has started to show signs of life. The cryptocurrency gained over 5% in the past week, reclaiming the $113,500 level and breaking free from a narrow trading range that had persisted for about a month. This movement suggests that some capital may be rotating out of traditional safe havens and back into riskier assets as macroeconomic fears subside.
The BTC/Gold Ratio Signals Opportunity
The timing of Bitcoin’s resurgence appears particularly noteworthy when examining the BTC/gold ratio, which measures Bitcoin’s relative value against the yellow metal. According to market analysis, this ratio recently flashed its most oversold reading in nearly three years. The 14-day Relative Strength Index for the BTC/gold ratio dropped to 22.20 last week, falling below its February low and reaching the weakest level since November 2022.
Historically, such extreme readings in the BTC/gold ratio have often coincided with local bottoms for Bitcoin. These periods typically precede phases where Bitcoin outperforms as traders rotate back into higher-beta assets once macroeconomic uncertainty diminishes. The current setup suggests that Bitcoin might be positioned for relative strength compared to gold in the coming weeks, especially if the Fed delivers the expected rate cut and risk appetite continues to recover.
What’s interesting here is how these two assets seem to be responding to the same macroeconomic signals but in different ways. Gold’s retreat reflects reduced safe-haven demand, while Bitcoin’s gains suggest renewed interest in risk-on assets. This divergence could indicate that investors are becoming more comfortable with taking on risk, perhaps viewing the Fed’s potential rate cut as supportive for growth-oriented investments.
I think we’re seeing a classic rotation play out here. When fear dominates, money flows into gold. When confidence returns, it moves toward assets with more growth potential. Bitcoin seems to be benefiting from that shift, though it’s still early to say whether this marks a sustained trend change or just a temporary rebalancing.
