Bitcoin Correlation with Gold Surpasses Nasdaq as Fed Hawkishness Cuts Gains

Bitcoin and gold have reversed course after both assets gave back much of last week's gains, a move driven by Federal Reserve Chairman Kevin Warsh's recent speech. The two assets had climbed in step through August as investors pursued a debasement trade, but that momentum broke when Warsh delivered a more hawkish reading of the economy at Jackson Hole on Friday.

The initial rally originated in the bond market, where the US Treasury announced it would double its buyback cap for longer-dated debt to at least $4 billion. Investors responded by shifting capital from fiat currencies into alternative assets. This rotation was visible in fund flows, with gold and Bitcoin exchange-traded funds drawing a combined $7 billion across five trading days, a record for that period. The MSCI global gold miners index gained 43% in August, marking its strongest month on record.

These flows pushed gold to its highest level since mid-May, reaching an intra-day high of $4,697 per ounce on Tuesday. Bitcoin rode the same trade, touching $81,354 on Binance last week, its highest level in approximately three months. However, both assets have since pulled back. Gold traded around $4,432 on Monday, down 5.6% from Tuesday's peak, while Bitcoin changed hands near $77,411, representing a drop of almost 5% from its recent high.

Warsh used his first Jackson Hole speech to sharpen his focus on price stability. "Inflation is running above our 2 percent target. So the Fed's predominant focus right now should be on prices," he stated. Rate markets repriced within hours of the speech, lifting the odds of a September rate increase. CME FedWatch data now puts the probability of a move to a 3.75%-4.00% target range on September 16 at 62.6%, up from 57% a day earlier and 39.9% a week ago.

Higher policy rates increase the opportunity cost of holding non-yielding assets like gold and Bitcoin, which explains their synchronized decline. Grayscale Research flagged this structural shift days before the selloff, noting that Bitcoin's 90-day correlation with gold climbed above 50% this year. Conversely, its correlation with the Nasdaq 100 fell from over 60% to roughly 33%. Zach Pandl, Head of Research at Grayscale, argued this reflects investors treating Bitcoin as a monetary hedge rather than a leveraged bet on technology stocks.

This new identity means the asset rallies on debasement fears but sells off when the Fed turns hawkish, regardless of tech stock performance. Some of the recent retreat may also reflect ordinary profit-taking after a steep run, as both assets remain far above where they started the month. The September 16 meeting will serve as the next test for this dynamic. If Warsh delivers the hike traders are currently pricing in, the debasement trade will face its first significant headwind since the bond selloff set it in motion.