Bitcoin and gold fell Thursday as hotter-than-expected US inflation data pushed Treasury yields higher and strengthened the case for another Federal Reserve rate hike, creating pressure on non-yielding assets despite record institutional demand for bullion.
The producer price index for August rose 0.4% month over month and 5.4% year over year, slightly above the 5.3% annual consensus, according to the Bureau of Labor Statistics. Goods prices climbed 1.1%, led by energy, while core producer inflation also accelerated on an annual basis. The report hardened the view that inflation remains too persistent for the Fed to relax its monetary policy stance.
The reaction was driven largely by rates. The 10-year Treasury yield moved toward 4.9%, approaching the 5% threshold, while the 30-year yield rose above 5.3%. Markets raised the probability of a September Fed hike to roughly 70%, up from around 62% before the PPI release. This shift made government bonds more attractive relative to non-yielding assets like Bitcoin and gold.
Bitcoin's decline reinforces a growing short-term relationship between the two assets. Neither Bitcoin nor gold produces yield, so when Treasury rates climb toward 5%, government bonds become more competitive as an investment alternative. The move comes just days after the Bitcoin-gold ratio reached around 18, with Bitcoin having significantly outperformed gold over the previous month.
Oil added another complication. Brent crude has pushed above $100 as Middle East supply risks intensify, feeding directly into inflation concerns. This geopolitical tension, normally supportive for safe-haven assets, is currently strengthening the case for tighter monetary policy through higher energy costs.
Gold's decline is notable because institutional demand had just delivered one of its strongest months on record. The World Gold Council's August data showed global gold ETFs attracted $18 billion, the second-largest monthly inflow ever. Holdings increased by 121 tonnes to a record 4,189 tonnes, while assets under management jumped 16% to $615 billion. Europe led with $7.9 billion of inflows, while North American funds added $7.7 billion.
The next major test comes with Friday's US CPI report. Consensus estimates point to headline CPI rising 3.3% from a year earlier, with core inflation at 2.4%. A hotter reading could push yields and the dollar higher again, keeping pressure on Bitcoin and risk assets. A softer print could trigger a relief rally by reducing the urgency for the Fed to tighten.
