Written by: Blockchain Knight

Despite the Federal Reserve signaling patience regarding interest rate cuts, gold and copper prices are rising against the trend. This divergence highlights the market's tendency to price in changes in liquidity ahead of central bank confirmation.

Historical experience shows that in the early stages of a loosening cycle, metal prices are often driven to adjust first by real yields, financing conditions, and changes in expectations.

Bitcoin, on the other hand, reacts more slowly to similar factors, with strong upward momentum typically occurring after metals have adapted to a loose environment. The current market pattern may be replicating this trend.

Financial markets have always adjusted pricing ahead of policymakers, especially when there are marginal changes in capital costs.

The movements of gold have repeatedly confirmed this point, as its price often rises months before the first interest rate cut, coinciding with a peak in real yields, reflecting investors' expectations of diminishing real returns on cash.

The rise in copper prices reinforces this signal. As an asset closely related to industrial demand and credit supply, its simultaneous increase with gold not only reflects a defensive market sentiment but also indicates that a loose environment will support the real economy, reducing the risk of misjudging signals from a single asset.

Real yields are a common core driving factor for gold, copper, and Bitcoin, particularly the U.S. 10-year yield.

Real yields represent the true returns on risk-free assets. When they peak and decline, the relative attractiveness of scarce assets increases, a relationship that is difficult to reverse even in the face of hawkish rhetoric.

Although copper's correlation is slightly weaker, it still benefits from the financial environment's loosening due to declining real yields, a weakening dollar, and improved credit, thereby supporting expectations for industrial demand.

Bitcoin follows the same framework, but because its investor base needs to wait for liquidity changes to become clear before acting, its reactions are always lagging.

Initially, capital prefers low-volatility, value-preserving assets, pushing up gold; subsequently, as the market's expectations for credit easing and economic growth strengthen, copper prices follow suit; only when confidence in the implementation of loose policies is sufficient does liquidity flow into the higher-risk Bitcoin.

In 2019, the rise in gold preceded Bitcoin's breakout, and as interest rate cuts became a reality, Bitcoin ultimately outperformed gold. In 2020, the timeline shortened, but the sequence remained similar.

Moreover, given Bitcoin's smaller market size and sensitivity to marginal fluctuations, once positions shift, subsequent price increases are often more pronounced.

Currently, precious metals have adjusted their pricing in advance, while Bitcoin remains in a range-bound fluctuation. This divergence is common in the early stages of a loosening cycle and will only disappear if real yields continue to decline, prompting a shift in capital allocation.

However, this framework also carries the risk of failure. A sustained rise in real yields would weaken the logic for rising metal prices and deprive Bitcoin of its liquidity support; accelerated quantitative tightening and a significant appreciation of the dollar would tighten the financial environment; soaring inflation could force central banks to delay easing, which would also raise real yields and limit liquidity expansion.

At present, the futures market is still digesting expectations of easing, with real yields on government bonds below cyclical highs, and precious metals have responded to these signals.

If real yields continue to decline, the movements of metals are likely to indicate that Bitcoin will follow suit, and with even stronger momentum.

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