Gold and copper are rising even as the Fed continues to show patience in cutting interest rates. This divergence suggests that markets tend to price in liquidity conditions ahead of formal policy changes, rather than waiting for central bank approval.
These metals react to changes in real yields, funding conditions, and expectations, often in the early stages of an easing cycle. In previous cycles, Bitcoin reacted late to the same forces, with its strongest gains only coming after the metal had already repositioned towards easing financial conditions.
The current setup looks familiar. Gold is attracting defense funding as real returns on cash and US Treasuries are compressed, while copper is responding to improved credit availability and expectations for global activity. Taken together, these suggest that markets are adapting to an environment where restrictive policies are reaching their limits, no matter how long and cautious the authorities say.
Bitcoin has not yet reflected that change, but history has shown that Bitcoin tends to move only after the underlying liquidity signals can no longer be ignored.
Metals move before central banks act
Financial markets typically reprice the situation before policymakers allow a turnaround, especially when the cost of capital begins to shift at a breaking point.
Gold’s behavior over multiple cycles clearly shows this. LBMA pricing data and World Gold Council analysis show that gold often starts to rise months before the first rate cut, as investors react to the peak in real yields rather than the cut itself.
In 2001, 2007, and again in 2019, gold prices rose, reflecting the expectation that holding cash would quickly reduce real returns, even though policy was still “officially” restrictive.
Copper responds to another set of incentives, which further strengthens the signal. Unlike gold, demand for copper is tied to construction, manufacturing and investment cycles, making it sensitive to credit availability and financing.
If the price of copper rises with gold, it simply signals a defensive stance, suggesting that the market expects easing financial conditions to support real economic activity.
Recent movements in CME and LME copper futures show that that is exactly what has happened, with prices rising despite uneven growth data and central bank caution.
This combination has a significant impact on the market as it reduces the risk of false signals. While only gold can rise on fear or geopolitical stress, only copper can react to supply disruptions.
When both move together, it usually reflects a broader adjustment in liquidity expectations, an adjustment that markets are willing to price in even without explicit policy support.
Real yields shape the cycle more than policy headlines
The common factor for gold, copper, and ultimately Bitcoin is the real yield on long-term government bonds, particularly the yield on 10-year U.S. inflation-protected securities. Real yield represents the return investors receive after inflation and acts as the opportunity cost of holding non-yielding or low-yielding assets.
When these yields peak and begin to fall, the relative attractiveness of rare assets increases, even if policy rates remain high.
U.S. Treasury data shows that gold prices have been closely linked to real yields over time, often starting to rise when real yields reverse, rather than after interest rate cuts. Once the real rate of return on U.S. Treasuries begins to compress, hawkish messages have rarely succeeded in reversing this relationship.
Copper is less directly related, but still reacts to the same background. Lower real yields tend to be accompanied by easier financial conditions, a weaker dollar, and improved access to credit, all of which support industrial demand expectations.
Bitcoin operates within this same framework, but is slower to react as the investor base tends to only react once changes in liquidity are more clear. In 2019, Bitcoin’s rally followed a sustained decline in real yields and gained momentum as the Fed moved from tightening to easing.
In 2020, this relationship became more extreme as real yields collapsed and liquidity flooded the system, accelerating Bitcoin’s performance long after gold had already repositioned itself.
This order explains why Bitcoin appears to be disconnected early in the cycle. This does not correspond to individual data prints or single rate decisions, but rather to the cumulative impact of real yield compression and liquidity expectations that metals tend to reflect early.
Capital turnover explains Bitcoin’s slow response
The order in which assets react during mitigation cycles reflects different types of capital reallocation methods. Early in the process, investors tend to prefer assets that maintain their value with low volatility, which supports demand for gold.
As expectations for credit easing and improved growth increase, copper will begin to reflect that change through higher prices. Bitcoin typically absorbs capital after easing is achieved and the market becomes more confident that liquidity conditions support riskier, more reflective assets.
This pattern was repeated throughout the cycle. In 2019, gold’s rally preceded Bitcoin’s breakout, and Bitcoin ultimately outperformed once interest rate cuts became a reality. In 2020, the timeline was shortened, but the order was similar, with Bitcoin’s biggest gains coming after policy and liquidity responses had already begun.
Bitcoin’s market is small, young, and susceptible to marginal flows, so once positioning changes in its favor, its movements tend to be sharper.
For now, Bitcoin is still range-bound, while metals appear to be rallying in price ahead of confirmation. This divergence was often present early in the easing cycle and resolved only after the compression in real yields became persistent enough to change capital allocation decisions more broadly.
What disables setup
This framework is dependent on continued easing in real yields. A sustained reversal in rising real yields would undermine the rationale for gold’s rally and weaken the rationale for copper, while removing Bitcoin from the liquidity tailwind that has supported past cycles.
Accelerating quantitative tightening and a sharp appreciation of the dollar will also tighten financial conditions, putting pressure on assets that rely on easing expectations.
A renewed spike in inflation that forces central banks to delay real easing could pose similar risks, as it would keep real yields rising and limit the scope for liquidity expansion. Markets can predict policy changes, but they cannot sustain those expectations indefinitely if the underlying data contradicts the policy shift.
For now, futures markets continue to price in eventual easing, with real yields on U.S. Treasuries remaining below cycle highs. Metals respond to those signals. Bitcoin has not yet done so, but its historical movement suggests that it tends to move only after liquidity signals become more durable.
If real yields continue to compress, metals will likely follow the path they are currently on, and Bitcoin will follow suit, and in a much bigger way.
(Tag translation) Bitcoin
