Is the Trump Effect Fading? Deep Reasons Behind the Plunge in Gold and Bitcoin Prices

Is the Trump Effect Fading? Deep Reasons Behind the Plunge in Gold and Bitcoin PricesOn February 28th, gold prices continued their decline, hitting a low of $2832.455 per ounce, a drop of 1

Is the Trump Effect Fading? Deep Reasons Behind the Plunge in Gold and Bitcoin Prices

On February 28th, gold prices continued their decline, hitting a low of $2832.455 per ounce, a drop of 1.54%. Although gold prices rebounded slightly after a failed negotiation between Trump and Zelenskyy at the White House, the cumulative four-day fall since the February 24th high of $2956.150 reached $100. While this isn't an unusually large drop in the gold market, the dramatic volatility in its "sister asset"Bitcoinsuggests significant challenges may lie ahead for gold.

On February 28th, Bitcoin plummeted 7.3% in a single day, hitting its lowest point since November 2023 and representing a 25% decline from its all-time high. Bitcoin prices fell more than 20% throughout February. If this downward trend continues until the end of the month, it will mark the largest monthly drop since June 2022. Similar to gold, Bitcoin's sharp correction was concentrated in the past week. Other major cryptocurrencies, such as Ethereum, Polkadot, and XRP, also fell by more than 7% on the day, with a general sense of panic permeating the market.

It's noteworthy that during the recent bull run for both gold and Bitcoin, their price movements were remarkably consistent, rising in tandem like "twin sisters." This upward trend was closely linked to Trump's political comeback. Since Trump announced his candidacy for the 2024 US presidential primaries in January 2024, Bitcoin prices began to accelerate upwards, with gold prices starting their ascent slightly earlier. Throughout 2024, influenced by Trump's pronouncements, both gold and Bitcoin experienced a spectacular bull run, generating substantial returns for many investors.

Trump's actions and statements during his campaign significantly boosted gold prices. His escalating global trade wars fueled concerns about a global economic slowdown, rising inflation, and tighter monetary policy, increasing the demand for gold as a safe-haven asset. For example, Trump's imposition of a 25% tariff on aluminum and steel imports, and the revocation of exemptions for major supplying countries; his aggressive rhetoric regarding territorial acquisitions, such as suggesting the purchase of Greenland, expressing openness to "acquiring" Canada, proposing renaming the Gulf of Mexico the "American Gulf," controlling the Panama Canal, and even threatening to acquire the Gaza Strip, all heightened geopolitical risks and triggered significant volatility in international gold prices.

Furthermore, direct support from Trump and his team for virtual currencies significantly inflated Bitcoin's price. Trump advocated for weakening the Securities and Exchange Commission's (SEC) regulatory oversight of cryptocurrencies, suggesting that crypto assets be classified as "commodities" rather than "securities," to be regulated uniformly by the Commodity Futures Trading Commission (CFTC), thereby reducing compliance costs. He also proposed eliminating long-term capital gains tax on cryptocurrencies, lowering the tax rate on Bitcoin held for over a year from 20% to 15%, aligning it with the gold investment tax rate; supporting businesses deducting on-chain transaction costs from operating expenses; supporting the revival of traditional energy sources to power Bitcoin mining, approving direct power supply from Alaskan oil and gas fields to mining farms, and promising a 30% federal subsidy for electricity costs; proposing that the Treasury Department hold 1% of its reserves in Bitcoin; proposing the creation of an "anti-sanctions cryptocurrency alliance," uniting sanctioned countries like Iran and Venezuela to establish a Bitcoin-based cross-border settlement network; and publicly accepting Bitcoin donations.

However, since Trump's official inauguration in January 2025, many of his policy promises have gone unfulfilled. Particularly on the issue of the Russo-Ukrainian conflict, Trump's inconsistent stance disappointed Western capital. His vote against condemning Russia's aggression at the United Nations General Assembly altered America's international image. Trump's premature revelation of his stance throughout the Russo-Ukrainian conflict negotiations was a tactical blunder, exposing his team's inexperience and overly aggressive approach.

Meanwhile, Scott Besent, the newly appointed US Treasury Secretary, recently stated that he would "monetize assets on the asset side of the US balance sheet for the American people" and planned to "leverage liquid assets, along with assets held domestically, by unlocking them for the benefit of the American people." This announcement sparked market speculation about which assets the US government might sell to repay its debts. Given the relatively illiquid nature of assets like government real estate, national parks, or mineral reserves, highly liquid assets like gold and Bitcoin have become the market's focus.

As of December 2023, the US government's official gold reserves were approximately 8133.5 tonnes (approximately 261 million troy ounces), making it the world's largest gold holder, accounting for about 20% of global official gold reserves. At the then-market price (assuming approximately $3000 per ounce), the total value was approximately $783 billion. On December 11th, 2024, the US government held approximately 200,000 Bitcoins; at the then-price of approximately $85,000 per Bitcoin, the market value was approximately $17 billion.

Some predicted that to achieve better sale prices, the US government might try to push gold prices to $4000 per ounce. However, the market is often smarter than anticipated. Before the government could act, gold and Bitcoin prices began to fall.

Due to a complex interplay of factors, both domestically and internationally, Trump's presidency will likely face unforeseen resistance and setbacks, which will shake investor confidence in gold and Bitcoin. The prices of these two assets are unlikely to experience the sustained upward trend seen last year. Ultimately, the trajectory of gold and Bitcoin prices will depend on the interplay of geopolitical situations, US economic policies, and market investor sentiment. The waning Trump effect, coupled with the potential monetization of US government assets, will profoundly impact the future performance of gold and Bitcoin.