Bitcoin and gold prices both likely to continue recent resurgence
Bitcoin and gold have been pushing higher, with haven demand and global easing in place. Are we likely to see both markets continue this recent resurgence?
Bitcoin and gold gain ground
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Bitcoin has finally picked up in the wake of a sharp decline in early March. In a world of rock-bottom interest rates, quantitative easing policies and huge debt creation, this should be a perfect environment for cyptocurrencies to gain traction.
Currency devaluation looks likely for the months ahead, and that prospect is helping to drive upside for non-fiat assets such as gold and bitcoin. The chart below highlights the relationship between gold and bitcoin, with the oversized move lower for bitcoin on 12 March ultimately being reversed as the recent outperformance sees the two markets move closer together. Ultimately, this proves that there is a relationship between the two markets.
Dual drivers to help push valuations
With both of these markets gaining ground in the face of a huge surge in global markets, we are able to understand that either of the following is happening.
Firstly, this continued ascent signals the underlying scepticism of the global economic picture, with speculation of an impending 2008-style recession ensuring people remain long such assets. This could point towards these markets outperforming for months to come, as the continued lockdowns required to keep the virus under wrap damages the global economic picture.
Secondly, this response could be to the ongoing rise in central bank easing and debt, as investors seek to park their cash in something which is less likely to be devalued by the actions taken in a bid to curb the detrimental impact of this coronavirus crisis. This is evident in the following chart, with the growth in Federal Reserve (Fed) assets typically associated with a higher price for gold. The sharp rise in Fed assets highlights how we could see a ramp-up in demand for gold in the coming months and years.
Those two types of scenarios are linked, for while increased stimulatory action can lessen the need to buy safe havens, it would raise the fears of devaluation that would provide a secondary reason to shift into gold or bitcoin.
Bitcoin surging into deep retracement level
Looking at the bitcoin chart on the daily time frame, we have seen a move past the 61.8% Fibonacci resistance level yesterday. That signals a likely move towards the next level at $7963. The question we are attempting to answer is whether this current move higher is part of a recovery that will ultimately see the price rise back through $9216 and $10,506 resistance levels.
Given that the declines seen in March managed to bring a break below the $6434 level, there is a chance we are seeing a retracement here rather than a reliable recovery. What we will need to keep an eye out for is whether these Fibonacci levels are respected or broken. With that in mind, the $7963 level is going to be key, representing the final Fibonacci hurdle before we head towards the crucial $10,506 level. To the downside, we would need to see a break below the $5856 swing low to bring about a more bearish view.
Gold pushes beyond 76.4% level
Unlike bitcoin, we have seen gold push beyond the 76.4% Fibonacci level already, highlighting a strong possibility that the price will ultimately resolve with a breach of the $1703 level. Such a breakout would bring a fresh seven-year high, taking us into levels not seen since 2013.
Given this break through the 76.4% resistance level, it looks likely we will see a continuation of this recent resurgence to ultimately break through $1703. This bullish view remains in play unless we see a break back below the $1567 level.
Given the relationship between these two assets, it looks likely that the recent gains we have seen for both assets are far from over. Haven demand, coupled with continued easing and debt creation, is likely to ensure traders remain bullish for both bitcoin and gold.
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