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