Bitcoin is looking to resume its uptrend towards $ 12,500 due to its proximity to traditional competitor gold.
The analogy comes from an unpredictable positive correlation between the two assets that have made them tandem trading since March 2020. Both gold and Bitcoin get their clues from the same fundamentals: global central bank policy in response to the coronavirus pandemic.
The correlation between Bitcoin and Gold since March 2020. Source: TradingView.com
These include ultra-low interest rates, a growing budget deficit, an infinite bond purchase program and a flagging US dollar. These guidelines ensure that safe havens other than gold and bitcoin will bring their investors low returns. You have no choice but to get better results on riskier assets.
Additionally, gold and bitcoin are also trading erratically as investors remain concerned about the delay in the second COVID-19 stimulus package, as well as growing uncertainty over the US presidential election in November.
Ultra Bullish Gold
On Tuesday, UBS Global Wealth Management's Kelvin Tay mentioned the same catalysts when predicting a bullish scenario for gold. The Chief Investment Officer said CNBC that the precious metal could easily get back $ 2,000 by the end of this year.
"In the event of uncertainty about the US elections and the Covid-19 pandemic, gold is a very, very good hedge," he said. "And his recent weakness is a great entry point for investors."
By "weakness", Mr. Tay was referring to gold's recent downward revision after not holding near its all-time high of $ 2,075.14. The XAUUSD exchange rate fell from that high by as much as 10.91 percent to $ 1,848 an ounce.
Even so, Tay pointed to the decline as an opportunity for investors to buy gold at a cheaper price. He specifically contrasted the bullish scenario of the precious metal with the Federal Reserve's vow to keep interest rates near zero through 2023.
"If they stay low, the opportunity cost of holding gold will also be low," said the UBS boss.
And that leaves BTC / USD …
… In better bullish shape. If the cryptocurrency tends to maintain its positive correlation with gold, it would put the precious metal on the uptrend. This is particularly evident in the downward price trend in August 2020.
Bitcoin was $ 12,500 for the year on Aug 16, 2020. This was 10 days after gold hit its all-time high, showing that the cryptocurrency is lagging behind the metal's trend. A TradingView.com analyst also discovered the correlation last week, as shown in his table below.
Bitcoin-Gold lagging correlation, as spotted by Trader_Johnni last week. Source: TradingView.com
On the other hand, skeptics believe that gold and Bitcoin risk a downward correction if the US Congress fails to pass the second stimulus package – or if uncertainty about the US election results remains. When this happens, investors want to get back into the safety of cash and drive the US dollar higher.