Investing.com -- Gold and Bitcoin have moved in opposite directions since Donald Trump’s electoral win on Nov. 5, with gold prices down by 4.7% while Bitcoin surged by 29%.
According to Gavekal Research, this divergence reflects contrasting reactions to the Republican victory, which markets perceive as unfavorable for gold yet beneficial for Bitcoin and cryptocurrencies.
While investors are “probably right” to react like this, anyone considering taking a short position on gold and going long on bitcoin “should consider the risks of this trade,” said Will Denyer, Chief US economist at Gavekal.
The election outcome has led to expectations of a more pro-business government stance, including tax cuts, deficit expansion, tariff hikes, and deregulation. For gold, this scenario implies a potential tightening of monetary policy and a stronger dollar, weighing down on the metal’s appeal as an inflation hedge.
Under Republican control, fiscal policies that support growth and inflation may prompt the Federal Reserve to consider rate hikes sooner than previously anticipated, rather than continuing its easing cycle. With the dollar strengthening, gold has faced downward pressure as it becomes less attractive relative to the US currency.
“Market participants are correct to conclude that the US election result implies a tighter monetary policy stance than they previously expected,” Denyer notes. “And their conclusion is supporting the US dollar and weighing on gold.”
Bitcoin’s trajectory, however, suggests a distinct sentiment. The economist highlights two factors supporting Bitcoin post-election: a likely friendlier regulatory environment for crypto and discussions around creating a “strategic Bitcoin reserve.”
Former President Donald Trump, known for his pro-crypto stance, has promised to fire SEC Chair Gary Gensler, a figure perceived as adversarial by the crypto industry. Furthermore, Republican Bernie Moreno, a blockchain advocate, won a Senate seat, marking another positive signal for the sector.
“With the White House, Congress and presumably the SEC all now likely to be more crypto-friendly, the expectation is that the Wells notices will cease, the industry will flourish, and demand for cryptocurrencies will rise,” Denyer explains.
“Heavy flows into bitcoin ETFs in the week following the election reflect this hope,” he adds.
Another factor bolstering the positive sentiment around Bitcoin is the proposed concept of a strategic reserve for the world’s largest cryptocurrency, though Denyer questions its feasibility.
While the idea may be inspired by the Strategic Petroleum Reserve, it lacks a clear rationale, as the US government controls the dollar supply and could counter crises by adjusting its currency issuance.
“It would be cheaper simply to print fewer dollars,” the economist argues.
Ultimately, Denyer concludes that whether these assets continue on their current trajectories will depend on upcoming policy shifts and regulatory developments.