• Gold hitting record highs in the first quarter of the year really underscored the prevailing risk-averse mood in the market.
• Interestingly, Bitcoin has already proven its resilience, holding steady near its high points even as gold prices surged.

Market analysts are now suggesting that with gold (XAU) reaching unprecedented peaks in Q1 and surpassing Bitcoin (BTC) in performance during periods of trade tension, we might be seeing a point where gold’s rise could pause. If that happens, capital might just flow back into assets considered riskier for potentially higher returns.

And if this shift in investment does occur, could Bitcoin then gather enough steam to climb back up to that $100k mark in the second quarter?

Potential rotation from Gold to BTC 

Gold’s impressive 70% climb over the past 16 months has ballooned its market capitalization to a massive $20.75 trillion. That’s now a whopping $1.25 trillion more than the combined market cap of the top 10 assets in the world. As a result of this incredible growth, experts are starting to think that if gold hits a local peak, we could see investors reallocating their funds.

The latest Bank of America survey gives us some supporting evidence here – a significant 58% of fund managers are currently favoring gold, while a mere 3% are backing Bitcoin. This preference has definitely limited Bitcoin’s appeal as a safe haven lately. However, if investor sentiment shifts even slightly, it could create a powerful upward push for Bitcoin.

Still, we can’t ignore the big picture – macroeconomic volatility is still a major factor. Bitcoin is currently trading about 10% lower than its New Year rally highs, while gold has extended its gains by an impressive 17%.

Interestingly, gold’s sharp upward trajectory happened at the same time Bitcoin was undergoing a corrective phase in the market. This hints at a possible shift in where liquidity was flowing, moving away from Bitcoin and towards gold.

Source: TradingView (XAU/USD)

To put it simply, during two noticeable market dips, gold reached new all-time highs, while Bitcoin failed to hold onto key support levels. This suggests a clear reverse flow of liquidity, moving away from Bitcoin and into gold.

However, gold’s recent slight downturn saw its Relative Strength Index (RSI) dip back into what’s considered a healthy demand zone before it then bounced back up to hit a fresh all-time high of $3,097.

Now, with the RSI indicator for gold flashing ‘extreme’ overbought signals, the chances of a price correction are definitely increasing.

If demand for gold starts to cool off, it could potentially set off a shift of capital back towards riskier assets. The big question is: could this potential rotation be the spark that Bitcoin needs to regain its image as a safe haven asset in the coming second quarter?

The real test for Bitcoin lies ahead

The rally we’ve seen in gold, soaring from $1,820 in October 2023 to $3,100 just this week, is truly something remarkable. Up by a strong 16% since the start of the year, gold is outperforming not just stocks and currencies, but even the mighty U.S. dollar – and this is happening despite interest rates going up.

Normally, a stronger dollar should push gold prices down. The usual logic is straightforward: a strong dollar makes investments in U.S. Treasury bonds more attractive. But instead, we’ve witnessed a surge in demand for gold, breaking away from typical market behavior.

At the same time, there are clear signs that inflation is picking up pace. The 1-month annualized PCE inflation rate just jumped over 4.0%, and the 6-month figures are now at 3.1%. As inflation eats away at purchasing power, gold’s role as a safe store of value becomes even more appealing.

Source: Bloomberg

As inflation makes a comeback, gold has notched up an incredible 50 all-time highs in just the last year. In fact, ZeroHedge reported that physical gold demand has surged at the same time as global trade tensions have escalated, further cementing gold’s reputation as a reliable macro hedge.

Back in January, U.S. gold imports hit a record high of $30.4 billion. That’s double what we saw during the pandemic levels of 2020 – a significant increase.

For Bitcoin to truly challenge gold’s dominance, we’d likely need to see something like a Bitcoin Strategic Reserve being established.

Without a development like that, expectations for Bitcoin to break through to $100k remain more in the realm of speculation, especially considering that riskier assets in general are still facing some limitations in liquidity.

Even though gold’s RSI suggests it might be overextended, its price behavior continues to show strong underlying demand. This makes any significant price drop seem unlikely, particularly with the looming ‘reciprocal’ tariff announcement – a major macro risk event on the horizon.

In this kind of environment, Bitcoin is facing a real structural test. Gold, on the other hand, looks set to continue its price discovery journey, potentially reaching even newer all-time highs.