Gold-Backed Cryptocurrencies Decline From Record Peaks as Stock Market Struggles

Points to know:

• Gold dropped after reaching a record high as markets responded to Trump’s reciprocal tariffs.

• Global equities saw a sharp decline on Thursday, prompting investors to sell gold in order to raise cash.

• Central banks increased their gold purchases in February, with Poland and China leading the way.

Gold-backed cryptocurrencies like Paxos Gold (PAXG) and Tether Gold (XAUT) retreated from their record highs on Friday amid a global financial market sell-off. This sharp decline wiped out $2.5 trillion in U.S. equities alone following U.S. President Donald Trump’s announcement of reciprocal tariffs.

The tokens, which are pegged to physical gold and track its price, initially surged as investors sought safety from the uncertainty caused by the tariffs. While gold is typically seen as a safe-haven asset, significant losses in stock markets often prompt investors to sell off safer assets to cover margin calls and offset losses.

PAXG reached an all-time high of $3,191, with XAUT not far behind at $3,190, surpassing gold’s peak price of $3,167. However, this initial surge was short-lived, as PAXG fell to $3,074 and XAUT dropped to $3,064, closely reflecting gold's pullback to $3,038 per ounce.

The announcement of tariffs on Wednesday unsettled the markets due to their broad reach and ambiguous targets. Investors, already nervous amid a volatile global outlook, quickly reacted. On Thursday, the S&P 500 experienced one of its sharpest declines since the early days of the COVID-19 pandemic in 2020, while the Nasdaq 100 posted its largest one-day point drop in history, as reported by the Kobeissi Letter. The downturn extended into Friday, with the MSCI World Index sliding 4.3% after a 3.7% loss the previous day.

Nonetheless, gold-backed cryptocurrencies remain 17% higher year-to-date. The rally has been driven by the Fed’s interest rate cuts, continued demand from Asia, and a significant increase in central bank gold purchases earlier in the year. In February, central banks collectively bought 24 metric tons of gold, according to the World Gold Council.

Poland was the biggest buyer, adding 29 tons, raising its total reserves to 480 tons, which now represents 20% of its foreign exchange holdings. Other nations such as China, Turkey, Jordan, and Qatar also boosted their gold holdings.