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Gold extends drop as Bitcoin nears all time high

Fawad Razaqzada Fawad Razaqzada 24/11/2020
Gold extends drop as Bitcoin nears all time high Gold extends drop as Bitcoin nears all time high
Gold extends drop as Bitcoin nears all time high Fawad Razaqzada
Gold continued to decouple from Bitcoin and the stock markets, losing further ground today in favour of more risk-sensitive assets. The shiny metal has fallen out of favour because of reduced demand for haven assets as investors look forward to more normal times ahead in 2021 with the developments of the vaccines.

Bitcoin has meanwhile closed in on its 2017 record high, with a rise of almost 5% today. This and other digital currencies have been surging higher over the past few weeks, with BTC/USD rising towards levels not seen since 2017. At over $19,300, Bitcoin was just a spitting distance away from reaching its 2017 high of just under $20,000. Investors have been piling into Bitcoin as it continues to become increasingly popular as an alternative to fait currencies. Some even regard it as a better store of value than gold because, unlike the precious metal, the supply of the digital currency is fixed and running short as more and more investors get their hands on it. Bitcoin was therefore on course to reach its 2017 record peak, but if it gets there, can it then reach for $25K or even higher?

But while gold may be down, the precious metal is by no means out. The long-term outlook on gold remains favourable. With a recovering global economy, jewellery demand should pick up to offset some of the weakness arising from the investment side. Inflation is expected to pick up sharply if the global recovery accelerates. This should be good news for gold, traditionally a good inflation hedge. But if the world economy does not recover so strongly, then interest rates will likely remain very low for a very long time still, thus providing tailwind support for gold and other non-interest-bearing assets. So, whichever way you look at it, the downside looks limited for gold.

In the short-term, the key level to watch is around $1800, previously a significant resistance level. This is also where we have the longer-term 200-day moving average come into play. With the dollar remaining on the backfoot, watch out for a potential bounce there:

GoldSource: ThinkMarkets and TradingView.com

Even if gold bounces at the above support zone, this does not automatically mean the low is in. For that to happen, gold will still need to form a higher high above $1880, its most recent high prior to the latest breakdown.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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