Investor appetite for gold and Bitcoin could not have been any more contrasting than earlier today. While Bitcoin’s price broke above $50,000 for the first time ever, gold had fallen more than 1% to trade back below the $1,800 level again. But gold managed to bounce sharply off its lows and was almost back to being unchanged at the time of writing as prices once again found support around that long-term $1800 level. Bitcoin was still up on the day, although off its earlier highs.
Reflation trade boost for Bitcoin
Earlier, the yellow metal was depressed as bond yields jumped higher with the return of US investors from a long weekend break. Bond prices have slumped in recent weeks with investors piling into the more risk-sensitive assets like stocks, Bitcoin, crude oil and copper amid speculation that the ongoing COVID vaccine rollout, slowing virus outbreaks and ongoing central bank and government stimulus will all help to stimulate a sharp global economic recovery. In other words, the “reflation” trade has been kind to cryptos, but not much for safe-haven gold. Not yet anyway. More on Bitcoin below, but first let’s talk a little about gold:
Gold down but not out
However, as I keep repeating, while gold may be down it is certainly not out just yet. Although bond yields have rallied, the US dollar continues to struggle. What’s more, the Fed has repeatedly talked down the prospects of early QE tapering. Other major central banks echo the same sentiment. With interest rates likely to remain depressed, and the potential for inflation to come back, gold may be able to rise from the ashes and rally. After all, gold has traditionally been used as an inflation hedge.
What gold needs now is a bullish trigger – a technical signal to suggest a low has been formed. So far, we haven’t seen that, but a rise back above the 200-day average would certainly be a major warning sign for those who think gold is doomed:
Source: ThinkMarkets and TradingView.com
Bitcoin needs to hold above $50K
As far as Bitcoin is concerned, well, a lot of people have been expecting it to hit that $50K hurdle and now that it has, some investors will undoubtedly be taking some profit. Going forward, if Bitcoin finds itself holding above $50K in the days ahead, then we could see renewed bullish momentum come into play and drive prices towards $55K next. There are no obvious technical levels to watch on the upside, except the big milestones like 55K, $60K etc.
Bitcoin remains fundamentally supported because of growing demand as major companies warm towards cryptocurrencies. So, we may not see the repeat of the late 2017-style sell-off. Bitcoin has become a lot more stable and although it will dip here and there, it is unlikely to lose half of its value like it repeatedly did in the past. But in so far as the short-term is concerned, Bitcoin will need to hold its own above the $50K to keep the bullish momentum alive, otherwise a short-term correction could be on the cards.