Gold on a Steady Decline, Is it Bitcoin's Time to Shine?

Bitcoin and gold are in the red this week, but their underlying narratives are diverging, with experts hinting at a potential shift in market sentiment.

The precious metal is down roughly 10% from its peak over the past six days, marking a sharp reversal after a prolonged rally. Bitcoin, in contrast, has shown relative strength, remaining 2% up on the week, per CoinGecko data.

“Gold’s latest pullback reflects a partial easing of geopolitical tensions, trade frictions, and profit-taking,” Tim Sun, Senior Researcher at HashKey Group, told Decrypt.

The divergence in performance has invoked the well-known lead-lag relationship between the two stores of value, which suggests that when gold takes a breather, Bitcoin leaps higher and vice versa.

With gold down double digits, some speculate Bitcoin could catch a bid.

“The pause in gold’s momentum could give Bitcoin space to rally in a catch-up trade,” Ryan McMillin, chief investment officer at crypto fund manager Merkle Tree Capital, told Decrypt. Considering gold’s recent run, “a swift rebound shouldn’t be the base case," McMillin added.

Sun echoed McMillin’s outlook, suggesting that gold’s consolidation after the recent drop may take longer than in previous episodes, citing strong U.S. equity returns supported by the ongoing AI cycle.

Gold’s 45-year historical data shows 10 instances in which the precious metal has dropped 10% in six days. In all of these scenarios, it took gold two months to recover from the drop, to net a mean return of 8.39%.

Since the demand for the two assets differs fundamentally, HashKey’s Sun does not expect a straightforward capital rotation.

“Gold demand is dominated by sovereign wealth funds, central banks, and conservative asset managers. Bitcoin flows, by contrast, are still largely driven by ETFs and investors with higher risk appetite,” Sun explained.

Looking ahead

With gold consolidating after a stellar run, both experts remained bullish on Bitcoin in the near term.

McMillin explained that the top crypto is entering a phase of institutional adoption and liquidity that could drive its next leg higher.

Sun maintained a cautiously bullish outlook, expecting a "choppy, upward-sloping path" for gold, underpinned by "widening global fiscal deficits and a steady drumbeat of risk events." 

For Bitcoin, the analyst sees a similar “range-higher” trajectory, supported by a gradual recovery in macro liquidity.