Gold hits record highs while Bitcoin lags despite US Dollar weakness

US President Donald Trump’s comfortable stance on the US Dollar’s (USD) weakening led to a massive single-day decline in the US Dollar Index (DXY) of 1.3% on Tuesday. Trump’s statement fuels speculation about debasement, prompting a sell-off in the Greenback and pushing Gold (XAU/USD) to a record high. Still, Bitcoin (BTC) lags in the race to replace the US Dollar despite the supportive macro backdrop.

Trump backs a weaker US Dollar, sees gains for US exporters

Donald Trump downplayed the weakness in the US Dollar, saying that it's great for business. The falling value of the US Dollar aligns with Trump’s push to attract more business from global economies, making US exports more competitive. This could potentially start a devaluation strategy to support US exporters, as seen with the Chinese government depreciating the Yuan (CNY) to counter tariffs imposed by the Trump administration. 

According to Trump, “The [US] Dollar’s recent decline is great for US businesses.” The US President also criticized China and Japan for artificially depreciating their currencies for the same motives. 

As the US government acknowledges the Greenback's declining value, currency markets witness intense selling pressure. In Asian markets, the debasement narrative brought some relief to local currencies, including the Indonesian Rupiah (IDR) and the Japanese Yen (JPY), while the Indian Rupee (INR) and the Chinese Yuan continue to weaken.

Additionally, the drop in the US Dollar could support the case for an interest rate cut by the US Federal Reserve (Fed), if exports spur growth without inflation rising in the long-term. The upcoming Federal Open Market Committee (FOMC) meeting on Wednesday is likely to keep the interest rates unchanged at the 3.50%-3.75% range. 

Gold, on the other hand, extends its rally after Trump’s disruptive stance, crossing $5,300 in the European session on Wednesday. However, Bitcoin lags below $90,000, extending the divergence with the yellow metal. Over the last year, Gold has posted gains of over 90%, while Bitcoin is down roughly 17%, reaffirming Gold’s safe-haven status amid debasement trades.

Glassnode data shows that Bitcoin’s correlation with Gold over the last 365 days has dropped to -0.051, as the metal benefits from traditional safe-haven flows while BTC remains trapped in a range. 

However, the sharp decline in the US Dollar Index (DXY) aligns with a minor recovery in BTC prices. Extended pullbacks in DXY in 2017 and 2020 align with Bitcoin's bull runs in those years, signaling a potential comeback for BTC bulls if the US Dollar repeats a similar decline.