According to a research note by Gavekal Research, this divergence can be attributed to market perceptions of the policy implications of the Republican Party’s electoral victory. The report notes, “Clearly market participants have concluded that the Republican Party’s victory is negative for gold and positive for Bitcoin and other cryptocurrencies.”
Gold’s decline is closely tied to expectations surrounding US fiscal and monetary policies. The Republicans are expected to introduce tax cuts, increase government spending, and reduce regulatory constraints, all of which could drive stronger economic growth and higher inflation. As a result, the US dollar has strengthened, which has put downward pressure on gold. “As the market has begun to price this in, the US dollar has risen against other currencies — and against gold,” the report states.
Crypto Tracker
Although the Federal Reserve (Fed) has been easing policy in response to disinflationary pressures, a shift in fiscal policy could force the Fed to alter its stance. If the Republicans’ policies trigger inflation, the Fed may be forced to halt its easing cycle and even consider rate hikes. A reversal in policy could strengthen the U.S. dollar further, continuing to weigh on gold.However, a risk to this outlook is the potential intervention of former President Donald Trump. If Trump were to exert pressure on the Fed to loosen monetary policy, inflation could rise, which would negatively affect the dollar and potentially reverse gold’s downward trend. On November 7, just two days after the election, Fed Chair Jerome Powell made it clear that he intends to stay on until the end of his term in May 2026, regardless of presidential pressure. Powell’s firm stance on defending the Fed’s independence could be a significant factor in maintaining monetary stability.
In contrast to gold, Bitcoin has benefitted from a more favorable market environment. The perception that Trump’s policies could foster economic growth and innovation, along with the possibility of regulatory changes, has drawn investors to cryptocurrencies. Bitcoin’s speculative nature and its appeal as a hedge against fiat currency devaluation have contributed to its rapid rise.Anish Jain, Founder and CEO of WadzChain, said, “This divergence can be attributed to several key factors. Bitcoin’s allure as a digital asset and its potential as a hedge against fiat currency devaluation has increasingly captured the attention of institutional investors. Younger generations, particularly tech-savvy individuals, are gravitating towards digital assets, further fueling Bitcoin’s growth.””Moreover, Bitcoin’s fixed supply of 21 million coins reinforces its appeal as “digital gold.” As inflationary pressures rise and currencies fluctuate, Bitcoin’s scarcity becomes a compelling factor. In contrast, gold’s appeal has shown relative softness amid recent economic and policy developments,” he added.
Jain also notes that as Bitcoin becomes more integrated into mainstream financial markets, it may decouple from traditional assets like gold. “Bitcoin’s evolution as a mainstream asset could lead to a greater decoupling from gold in terms of price movement,” he says.
The road ahead for Gold & Bitcoin
Analysts suggest that the current divergence between gold and Bitcoin reflects the complex and evolving dynamics of market expectations. While gold’s future performance remains closely tied to fiscal and monetary policies, Bitcoin’s growth is driven by its adoption as a mainstream digital asset, technological advancements, and regulatory shifts.
Investors looking to take a ‘short gold, long Bitcoin’ position should carefully assess the risks involved, as both assets face unique challenges and opportunities, analysts caution.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)