Safe-haven investing is losing its old logic. As gold and Bitcoin slump together, money is flowing into the stock market, which is riding the artificial intelligence (AI) boom. Analysts say fears that the U.S. Federal Reserve will keep monetary policy tighter for longer are reshaping the asset market.
On July 1 local time, August gold futures on the New York Mercantile Exchange settled at $4,082.40 per ounce. According to The Wall Street Journal, front-month gold futures fell 13.4% in the second quarter alone. That is the steepest quarterly decline in 13 years, since the second quarter of 2013, when commodity markets were roiled by volatility.
◆ Gold down 28%, Bitcoin cut in half…support levels broken
Gold’s trajectory has been dramatic. At the end of January, it surged to an all-time high of $5,586 per ounce. Since then, it has been in decline. By the end of last month, intraday prices had fallen to the $3,940 range, breaking the psychologically important $4,000 level for the first time since last November. At one point, the drop from the peak reached 28%.
Bitcoin, often called “digital gold,” is in even worse shape. On June 24, Bitcoin lost the $60,000 level for the first time since the end of 2024. On June 30, it fell below $58,000, and on July 1 it still had not reclaimed $60,000. Compared with its all-time high of $126,000 set in October last year, the cryptocurrency has been cut in half. It is down more than 33% so far this year.
The stock market moved in the opposite direction. In the second quarter, the S&P 500 and Nasdaq rose 15% and 21%, respectively, their strongest quarterly gains since the second quarter of 2020. The Dow Jones Industrial Average also rose 9% in the first half. Under the same tightening concerns, asset performance has diverged to extremes.
The fact that stocks are rising while the market is in a tightening cycle looks paradoxical. The interpretation is that expectations that AI investments will translate into corporate earnings have outweighed the burden of higher rates. In the broader asset market, money that left safe havens appears to have moved into stocks in search of growth.
Gold bar image. (Photo = Freepik) ◆ A change in the flow of money triggered by tightening fears
The starting point of the split is the Fed. At its meeting last month, the Fed, led by Chair Kevin Warsh, kept the benchmark rate unchanged at 3.50% to 3.75%. The problem was the projection released alongside the decision. Nine of the 18 policymakers expected at least one additional rate hike this year. It was the moment when hopes for rate cuts, which had dominated markets at the start of the year, were reversed by fears of further hikes.
When rates rise, assets that do not pay interest lose appeal first. Gold and Bitcoin are the clearest examples. In an environment where one can earn returns simply by holding dollars, assets whose ownership itself carries an opportunity cost are pushed to the back burner. That is why some say the stronger dollar has drawn global capital into dollar-denominated assets.
Inflation worries are also tied to war. In late February this year, clashes between the United States and Iran pushed up oil prices and revived concerns about inflation. After the two sides signed an agreement last month, oil prices fell back close to prewar levels. Even so, tightening fears have not disappeared.
Bitcoin has also faced its own unique headwinds. Outflows from U.S. spot Bitcoin exchange-traded funds (ETFs) continued for seven consecutive weeks, with net monthly outflows estimated at $6.4 billion. ETFs are a channel through which individuals and institutions can gain indirect exposure to Bitcoin. When money leaves that channel, fund managers must sell actual Bitcoin. It is a structure that can turn declines into further declines. The total market capitalization of crypto assets has shrunk from $4.3 trillion in October last year to about $2.1 trillion.
U.S. financial outlet TheStreet compared the latest plunge with the 2013 “taper tantrum,” saying the trigger was similar: a signal that the Fed would withdraw support sooner than the market expected. The difference is the height from which prices are falling. This time, gold is dropping from a much higher level than then.
◆ Oversold arguments and the July turning point
There is also a growing view that the selloff has gone too far. Robin Brooks, a senior fellow at the Brookings Institution and former chief forex strategist at Goldman Sachs, wrote in an online newsletter on June 25 that “even though oil prices have essentially returned to prewar levels, the market is pricing in more Fed hikes.” His argument is that markets are reading the Fed’s signals as more hawkish than the real economy justifies.
Gold still has structural support. A World Gold Council survey of 76 central banks found that 89% plan to increase their gold holdings this year, the highest proportion on record. Based on that, UBS said gold could recover to the $5,200 level within 12 months. Samantha Dart, co-head of commodity research at Goldman Sachs, also maintained her year-end target of $4,900.
That is because funds spread across gold accounts, gold ETFs, and crypto assets are all being shaken in the same direction. In other words, diversification is failing to act as a shield.
How sensitive the market has become was evident in trading on July 1. When Chair Warsh said that “energy prices have come down significantly,” gold prices rebounded more than 1% intraday. The fact that a single remark can move prices so sharply shows how tightly tightening fears are controlling the market.
On July 2, the U.S. employment report is due, followed by the June Consumer Price Index (CPI) on July 14. If easing inflation is confirmed, tightening fears could subside and oversold assets may rebound. If not, the two support levels of $4,000 and $60,000 will once again be tested.