Gold prices have had an interesting few days as the price reached an all-time high, and this happened while traders were looking at the price of bitcoin, which scored its all-time high yesterday as well. The question for traders and investors who are looking at these two assets, which have recorded new all-time highs and are both considered safe haven assets, is their future trajectory from here onwards.
Background
The yellow metal, gold, crossed above the price level of $2,100 this week (for the first time since December last year), which fuelled hopes among investors that the shining metal is likely to score a new all-time high, which it did yesterday by touching the highs of 2141. The previous high for the gold price was recorded on December 4, 2023, when the price reached the level of 2137.
Interestingly, the new record high for the Bitcoin price also happened yesterday when the price recorded a brand new high of 69136 but quickly dropped below 60K, marking a loss of -10%. However, the price did experience a quick rebound and moved above the support level of 60K.
Interesting Fact
Gold and bitcoin are both considered in limited supply in comparison to fiat currencies, especially the US dollar, where the Fed has been running the printing machine pretty much non-stop. The monetary policy stance adopted by the Fed very much influences the price of gold and bitcoin, and past history shows that there is evidence of a correlation between the USD and the safe havens—bitcoin and gold. Mostly, when the Fed adopts a hawkish stance, the price of gold and bitcoin falls because a tight monetary policy spurs strength for the US dollar. Similarly, when the Fed behaves in a dovish manner by adopting a more accommodative policy, the price of bitcoin and gold moves to the upside as the dollar generally declines. However, this week so far, we have not had any change in the Fed’s monetary policy stance, as they hold their ground and stick to their view that excessively loose monetary policy is unlikely to take place. The Chairman of the Federal Reserve, Jerome Powell, sent some reality checks to market players last month when he indicated that traders are getting ahead of themselves in terms of their expectations of the number of interest rate cuts.
It is in this essence that the two-day event, which will kick off today with the Fed’s testimony to the House today and to the Senate tomorrow, will be of significant importance for traders. It is highly likely that the chairman will not rock any boats, and he will stick to his guns. But traders are expecting some sharper language. I believe that traders and investors should pay attention to how he expresses his views on the current inflation reading and the risk that is still lurking. If it shows more satisfaction over the next two days with the current progress of inflation and where it currently sits and is headed, speculators would consider that a risk-on event, which means the dollar would weaken and we could see some more tail wind heading for gold and bitcoin. If the emphasis is on the lurking risk, then we should see a flight to safety, which means the dollar index would strengthen more, which would push gold and bitcoin prices relative lower.
In terms of the price levels, for bitcoin, the important level continues to remain at 59K, which is what was tested yesterday, and a break of this would open the door towards the next level, which is at 55K. For the gold price, the immediate support level is at 2090, and a break of this would open the door towards the next support of 2026.
Trading Bitcoin chart by AvaTrade
