Bitcoin is looking to resume its uptrend towards $12,500 based on its proximity with traditional rival gold.
The analogy pops out of an erratic positive correlation between the two assets that have caused them to trade in tandem since March 2020. Both gold and Bitcoin receive their cues from the same set of fundamentals: the global central bank policies in response to the coronavirus pandemic.
The correlation between Bitcoin and Gold since March 2020. Source: TradingView.com
That includes ultralow interest rates, an expanding fiscal deficit, an infinite bond-buying program, and a weakening US dollar. These policies ensure that safe-havens other than gold and Bitcoin return meager yields to their investors. They thereby leave them with no option but to seek better results in riskier assets.
Atop that, gold and Bitcoin are trading erratically also as investors remain worried about the delay in the second COVID-19 stimulus package, as well as growing uncertainty over November’s US presidential election.
Ultra Bullish Gold
On Tuesday, Kelvin Tay of UBS Global Wealth Management mentioned the same catalysts as he predicted a bullish scenario for gold. The chief investment officer told CNBC that the precious metal could easily reclaim $2,000 by the end of this year.
“In [the] event of uncertainty over the U.S. election and the Covid-19 pandemic, gold is a very, very good hedge,” he said. “And its recent weakness represents a great entry point for investors.”
With “weakness,” Mr. Tay was referring to gold’s recent downside correction after failing to hold steady near its all-time high at $2,075.14. The XAUUSD exchange rate fell by up to 10.91 percent from the said top to $1,848 an ounce.
Nevertheless, Mr. Tay pointed the dip as an opportunity for investors to buy gold at a cheaper rate. He specifically pitted the precious metal’s bullish scenario against the Federal Reserve’s vow to keep interest rates near zero until 2023.
‘If they remain low, the opportunity cost of holding gold will go low as well,’ the UBS chief stated.
And That Leaves BTC/USD…
…in a better bullish state. If the cryptocurrency inclines to maintain its positive correlation with gold, then it would tail the precious metal to its upside run. That is particularly visible in its lagging price action in August 2020.
Bitcoin topped for the year near $12,500 on August 16, 2020. That was 10 days after gold established its all-time high, showing that the cryptocurrency is laggingly tailing the metal’s trend. A TradingView.com analyst also spotted the correlation last week, as shown in his chart 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 downside correction should the US Congress fail to pass the second stimulus package – or uncertainty over the US election results remain. In that case, investors would want to move back to the safety of cash, pushing the US dollar higher.