Gold is approaching a technical bear market, down nearly 20% from its all-time high in January. Traditionally seen as a store of value and a hedge against geopolitical uncertainty, gold’s recent performance challenges that narrative. Despite escalating tensions in the Middle East, prices have fallen around 10% since the war began in late February.
Markets have also reassessed the outlook for interest rates, with cuts now largely postponed and policy expected to remain tight through December 2026. At the same time, rising oil prices, driven by geopolitical risk, are adding upward pressure on inflation, reinforcing the higher long-term rate environment, a key headwind for gold.
While aligned with the M2 money supply, which includes cash, deposits and other liquid forms of money, gold is trading close to levels seen at major historical peaks in 1974 and 2011, when it cost $200 and $1,800 an ounce, respectively. On this basis, gold appears to be consolidating at elevated levels, potentially forming a cyclical floor relative to global liquidity.
In contrast, bitcoin relative to M2 remains in a 2024-like consolidation phase, as it retests its 2021 highs on a liquidity-adjusted basis. Historically, in each cycle bitcoin has surpassed previous peaks when adjusted to the money supply. Given that Bitcoin is still roughly 40% below its October high, this may represent a typical consolidation range before further upside.
Gold has traded alongside bitcoin tick after tick since plunging from $5,000 on Wednesday, showing elements of positive correlation after diverging from crypto markets earlier.
