Bitcoin Outshines Gold as Trade Tensions Ease

Bitcoin, often compared to “digital gold,” has recently shown distinct behavior compared to its physical counterpart. While gold's price dropped to a monthly low on Wednesday, Bitcoin retained its gains, highlighting an increased investor preference for risk-on assets like Bitcoin amidst the easing of trade tensions between the U.S. and China.

Gold's price fell by 9%, dropping to $3,185 per ounce from its peak of $3,500 in mid-April, as per Trading Economics. In contrast, Bitcoin saw a 17% increase, rising from $88,200 to $103,600, based on CoinGecko data.

The divergence between Bitcoin and gold has become more evident as productive U.S.-China trade negotiations offer relief to investors. Earlier this year, escalating trade tensions between the two nations sent global markets into turmoil. However, the U.S. recently lowered tariffs on Chinese imports from 145% to 30%, while China reduced tariffs on U.S. goods from 125% to 10%. These revisions, effective for 90 days, were announced in a joint statement on Wednesday.

Economist and Bitcoin critic Peter Schiff noted that gold has faced several selloffs during its rally, particularly during the U.S. trading session, which he interpreted as a sign of gold shifting from U.S. to foreign ownership.

While Bitcoin has shown strength against U.S. stocks during President Trump's trade war, gold has outperformed Bitcoin so far this year, with Bitcoin rising 10% and gold gaining 23% since January.

Growing concerns over U.S. dollar debasement and a weaker dollar have recently supported Bitcoin’s “safe haven” status. Similar factors are influencing gold, with the U.S.-China de-escalation taking center stage. In April, Chinese gold ETFs saw record inflows of $6.4 billion, driven largely by concerns over the U.S.-China trade war, according to Ray Jia from the World Gold Council. 

However, Jia also noted that inflows slowed in May, and demand may cool in the short term due to the trade tensions easing, though economic and geopolitical risks may still drive long-term demand for gold.

Despite early outflows from Bitcoin ETFs, recent data shows a strong reversal, with net inflows surpassing $41 billion since their Wall Street debut last year, setting a new all-time high for inflows.