(Kitco Commentary) - Gold may have found its bottom under $4,000. Bitcoin's bounce already looks tired, and with the midterms tomorrow, risk versus reward favors the yellow metal right now.
When Friday ended, gold and Bitcoin were both beaten down. By Monday morning, it was clear which one buyers wanted.
Gold bounced hard. After dropping to $3,870 on Friday, its lowest level in over a year, it's back near $3,968 this morning, up more than 2% on the day. Bitcoin bounced to about $78,700 over the weekend, and it's already given most of that back. As I write this, it's sitting around $77,400.
Put the 1hr charts side by side and it's not even close.
Gold 1hr chart showing the bounce off Friday's low near $3,870
Bitcoin 1hr chart showing the weekend bounce to $78,700 already fading back toward $77,400
My trade
I went long gold and silver on Friday, right at the bottom, and got a great entry. If you were in The Profit Circle, you saw the exact moment I entered the trade on Breakout Prop and Phemex, because I called it out in real time. (I'm an affiliate of both.) I also laid out my full thesis over the weekend. On top of that, I bought physical silver this weekend.
Has gold found its bottom?
Gold hit an all-time high above $5,600 in January. At Friday's low, it was down about 30% from that peak. That's a deep pullback for an asset that's supposed to be a safe haven, and it's sitting right at a level of support. The selling on Friday looked more like forced liquidation than people giving up on gold, which is a market that will always exist, so a bottom is inevitable at some point. When tech stocks sold off, investors sold whatever they could to raise cash, and gold got caught in it.
This dip below $4,000 might be the last chance to buy gold for under $4,000.
Bitcoin is a different story. The bounce since the bottom on Friday has been relatively weak, spot Bitcoin ETFs saw more than $640 million in outflows on Friday, and the Fear and Greed Index is sitting in fear. Gold might be at the bottom. Bitcoin might not be.
Risk versus reward
Bitcoin has always been more volatile than gold. If the market turns to the upside, it would be natural to expect Bitcoin to outperform. But if all assets keep dropping, Bitcoin would probably outperform to the downside too.
Bitcoin is great in a bull market. In a bear market, it can be devastating. In a sideways market, it's unpredictable. With gold sitting at support, risk versus reward makes it a safer play than Bitcoin right now.
The elephant in the room: the midterms
The midterms are tomorrow, and I'm uncertain on all risk assets right now.
Historically, markets pump after the midterms. The S&P 500 has been higher 12 months after every midterm election since 1954. But we're in unprecedented territory when it comes to valuations. The Buffett Indicator, which compares the total value of the stock market to the size of the economy, is above 230%, near record highs. By that measure, stocks are way overvalued.
Bitcoin trades with stocks, especially tech stocks. If tech keeps pulling back, Bitcoin won't be able to build the strength and momentum it needs to move higher. Gold, on the other hand, has historically been seen as a hedge against inflation. With oil still elevated and the market pricing about a 75% chance of a Fed rate hike in December, inflation isn't going away, and that's the environment where gold can rally, or at least stop falling.
What else to watch this week
- Apple reports after the bell today.
- The midterms are tomorrow.
- The October jobs report comes out Friday.
- Binance has started reopening withdrawals after last week's $6.3 billion hack, so that overhang is starting to clear for crypto.
That's a lot of catalysts packed into one week, and any one of them can move the market fast.
How I'm playing it
I'm long gold and silver, and I'm holding and accumulating physical silver and gold long-term. I am still in support of DCAing (Dollar Cost Averaging) into Bitcoin, which means buying a little each week for several weeks to months, but I am not in a rush to enter a large leveraged long trade until we see how markets react this week.
If you believe in Bitcoin for the long term, DCAing still makes sense. Just don't confuse a long-term plan with a short-term trade. I will not be DCAing into any altcoins even though I closed my shorts for a huge gain last week. With altcoins it's generally better to wait until upward momentum is clear because there is no limit to how far they can fall.
I'll be posting what I'm seeing in real time in The Profit Circle, my private Discord community.
If you want to learn how I read moves like these, that's what I teach at CassiusCuvee.com, and Swell Point is built to help you spot when momentum actually shifts after the noise. GetSwellPoint.com
General chat in The Profit Circle is free! 🌊
