Here’s how the chart overlay looks like:
Gold (XAU/USD) vs Bitcoin (BTC) daily chart
Gold is at fresh all-time highs today, although some profit-taking has seen gains cool off to around $2,087 now – down from around $2,148 earlier in the day. At the same time, we’re also seeing a major break higher in Bitcoin back above the $40,000 mark and now also above $41,000 on the day. So, what gives?
Both tend to trade almost hand-in-hand in trading this year, so this latest synchronised breakout isn’t exactly a coincidence.
For me, the proposition is a simpler one. I’ve been advocating for gold longs for quite a while now, all the way back since July and August. I said back then:
“And if sellers can break below that (200-day moving average), there might not be much to stop gold from falling further towards the February and March lows near $1,800.
In any case, my structural bias remains long on gold and the two levels above are good spots for buyers to make a stand. The $1,900 mark may yet give way considering the bond market sentiment, so I’d rather scale in on longs than to jump with both feet if and when we do get to that level first.
And if we do get a significant retracement back to $1,800, I can imagine buyers licking their lips to get in on the action as the long-term outlook is likely to favour gold as central banks move to the sidelines on tightening further.”
That final part is the most important one i.e. central banks moving to the sidelines. And that is also a key reason why risk takers are getting excited about Bitcoin I reckon.
If you recall, the last time Bitcoin flourished was all the way back in the Covid era when central banks flooded markets with liquidity and introduced ultra easy policy. We’re not in the same kind of stimulus-driven market now but sentiment is a powerful tool. And with central banks starting to see rate cuts priced in, trading sentiment is reverting back to easier policy and that is a strong driver and initiative for risk trades in general.
Gold is an obvious beneficiary from that as stated above. But it seems like Bitcoin traders are capitalising on that with gains this year hitting near 150% at this point in time. That is nearly erasing the extremely sharp fall from last year and sets up an interesting one heading into 2024.