Gold and Bitcoin Prices Surge: A Double-Whammy of Dollar Weakness and the Trump Effect

Gold and Bitcoin Prices Surge: A Double-Whammy of Dollar Weakness and the Trump EffectRecently, gold and Bitcoin prices have experienced a sustained rally, hitting new highs. This is closely linked to the weakening US dollar and the policies of newly re-elected US President Donald Trump

Gold and Bitcoin Prices Surge: A Double-Whammy of Dollar Weakness and the Trump Effect

Recently, gold and Bitcoin prices have experienced a sustained rally, hitting new highs. This is closely linked to the weakening US dollar and the policies of newly re-elected US President Donald Trump. As of January 25th, the US Dollar Index fell below 109, closing at 107.25; Bitcoin reached $104,700, nearing its all-time high of $109,200; and the spot price of gold hit $2771.25, just shy of its record high of $2790. Gold's rise is primarily attributed to the dollar's depreciation, while Bitcoin's surge is more complex, driven by both the dollar factor and a positive attitude towards cryptocurrencies from the Trump administration.

Weakening Dollar Drives Gold Prices Higher

Following Trump's re-election, market optimism surged, with the three major US stock indices rising collectively, and the S&P 500 nearing its all-time high. While the US Dollar Index briefly rebounded, it ultimately hovered around 108 before closing near 107 this week, marking its largest weekly decline recently. Chen Jiarui, a senior analyst at GAIN Capital, stated that while the realization of Trump's "golden age" remains uncertain, gold prices have risen significantly, recently reaching their highest point since the November 4th, 2024 US presidential election. Bulls are once again targeting the historical high of $2790.

Chen Jiarui's analysis indicates a robust, even strong, upward trend in gold prices at both the daily and weekly levels. However, overbought conditions are evident in the hourly chart, suggesting a potential correction near the upper channel boundary (around $2750) established since late December. Nevertheless, as long as gold prices remain above $2725, the upward momentum is expected to continue; a break below this level would necessitate a closer watch on the $2700 mark.

Trump's pressure on Federal Reserve Chairman Powell to cut interest rates has also fueled the gold price increase. Trump has publicly stated his belief that he understands interest rates better than the Fed and desires a "substantial" rate cut. Non-interest-bearing gold typically performs well in a falling interest rate environment, thus Trump's pressure has had a positive impact on the gold market.

Previous concerns about tariffs driving up US inflation and thus preventing interest rate cuts or even leading to rate hikes have subsided. Currently, Trump's stance on tariffs remains ambiguous, and the December 2024 US core CPI (excluding food and energy) unexpectedly fell to 3.2%, meaning the Fed is unlikely to be forced into a rate hike. Market expectations for only one rate cut by the Fed this year remain unchanged, but the timing has shifted from September to May.

Beyond macroeconomic conditions, the global trend of central banks increasing their gold holdings provides medium-to-long-term support for gold prices. For example, in December 2024, the People's Bank of China continued its November trend, increasing gold reserves for the second consecutive month after a six-month pause.

Bitcoin Poised for Another High

Compared to gold, Bitcoin's recent surge has been more dramatic, largely attributed to the hype surrounding the "Trump coin." The personal meme coin $TRUMP ("Trump coin") surged nearly 300% in just two days, igniting the cryptocurrency market. Industry insiders believe that "$TRUMP" not only reflects Trump's personal preference for cryptocurrencies but also represents official presidential endorsement.

Reports suggest Trump is preparing to issue a series of executive orders related to cryptocurrencies. Numerous cryptocurrency insiders say Trump is surrounded by major players in the cryptocurrency field, who are instrumental in pushing for policies favorable to the industry. Trump has previously expressed a desire to promote Bitcoin as a global strategic reserve asset, potentially enhancing the dollar's position as the world's reserve currency.

Several US states are exploring the establishment of cryptocurrency reserves, developing policy frameworks, and promoting cryptocurrency legalization. Although Trump's first day in office saw no announcements regarding cryptocurrencies, leading to a temporary Bitcoin price correction, this was followed days later by a presidential executive order aimed at boosting the cryptocurrency industry.

On January 23rd, the White House announced that Trump signed an executive order titled "Strengthening America's Leadership in Digital Finance Technology," mandating the creation of a "Digital Asset Market Working Group" within the National Economic Council. Furthermore, the US Senate Banking Committee established a new Digital Assets Committee, chaired by Wyoming Senator Lummis. Senator Lummis subsequently issued a statement announcing the committee's focus on bipartisan digital asset legislation, to promote responsible innovation and protect consumers.

Challenges Remain for Bitcoin as Strategic Reserve

However, Bitcoin still faces numerous challenges in becoming a true strategic reserve asset. Li Lianxuan, Hashkey's tokenization manager, explained that, based on Senator Lummis' previous proposal, the US government plans to purchase 1 million Bitcoins, approximately 5% of the current circulating supply. At current market prices, this purchase would cost around $90 billion; if the bill passes, investors might preemptively buy, further increasing the cost.

Trump plans to maintain the government's approximately 200,000 Bitcoins acquired through asset seizures. Lummis' proposal mandates holding these Bitcoin reserves for at least 20 years, leveraging Bitcoin's appreciation to help reduce the national debt. This policy framework not only pledges to ease regulatory pressure on the cryptocurrency industry and optimize the operating environment for digital asset companies but also reflects America's strategic intent to seek leadership in the global digital asset arena.

Li Lianxuan noted that Trump hopes to control the global digital currency market to avoid "de-dollarization," attract international capital inflows, and alleviate fiscal deficit and trade deficit problems. Currently, various US states are taking action, with eight already proposing legislation to establish cryptocurrency reserves.

However, the plan's implementation requires further development of legal frameworks and technical solutions. Li Lianxuan emphasized that unlike the US's strategic petroleum reserve, Bitcoin has no inherent practical value; also, changes in strategic reserves are regularly disclosed, and if the US were to sell its strategic reserve, this could trigger preemptive selling by cryptocurrency investors, shrinking the reserve.

Furthermore, concerning the Fed's purchasing power, its balance sheet records gold certificates held by the Treasury, with a book value of approximately $11 billion, based on the fixed statutory price since 1973 $42.2222 per ounce. At current market prices, these gold holdings are worth around $675 billion. Theoretically, the Fed has sufficient gold reserves to purchase 1 million Bitcoins and still retain significant gold holdings.

Some market observers believe Lummis' bill faces significant hurdles and currently lacks co-sponsors. According to data from the cryptocurrency prediction platform Polymarket, the probability of Trump creating a Bitcoin reserve is currently only 31%. Many believe this remains a gamble with government funds, and Bitcoin has yet to prove itself as a particularly stable asset.