Daily Outlook

Gold updates records, but not without caution

Nothing seems to be standing in the way of Gold right now. The aggravation of relations between China and the United States is causing traction in protective assets, thus the yen and the franc are growing. Shares in Shanghai and Hong Kong are now under considerable pressure. On Friday, stocks of American IT giants were under stress, which also underlines the mood of profit-taking on popular stocks.

However, the markets are far from the chaos and despair that prevailed in spring, and this is the best combination for gold and bitcoin. Monday morning Gold reached $1944, more than $20 above its 2011 historic highs. The growth so far this month already adds $200 or 12% to the price. This dynamic is also comparable with 2011.

These comparisons, however, should also provoke caution. Back then, the price peak was followed by a year of wide sideways range between $1500-$1800, and this was later followed by three years of decline.

Bitcoin also received its share of investor attention over the weekend. Its price jumped to $10,300, confirming the breaking of the downtrend and rising to the highs of February this year.

In both cases, purchases were triggered by investors’ desire to diversify risks associated with the U.S. and Chinese currencies, as well as stocks, where there is rapid profit-taking. Usually, such combination is the most successful period for gold and bitcoin, as investors rush to find instruments with value.

At the same time, investors should closely monitor the dynamics of stock indices. Often the markets quickly move from the stage of profit-taking to deleveraging, and these forced sales usually cover a large part of sectors, including both gold and bitcoin.

Earlier this year, for example, the value of an ounce of Gold was rising in late February, the first days of the stock markets’ downfall in fear of a pandemic. Until March 9th, the volatility of the metal was higher, but the upward trend continued. In the following 10 days, along with global deleveraging, gold lost about 15%, losing all its growth since December.

In 2008, the impulsive pressure in the world markets wiped off about 30% from the metal in less than four months, from levels just below $1000. The price overcame this milestone about a year later, however, this growth was closely connected with the dynamics of stock indices.

The same is true for Bitcoin. Its upward movement at the collapse of stock markets can now be viewed as insignificant and short-lived. Global deleveraging more than halved the price of the first cryptocurrency in the next 10 days of March. It was only after the start of a recovery, that BTC returned to growth. However, it was a movement that echoed the general demand for risks.

Therefore, we should now be wary of the current growth of gold and the cryptocurrency in contrast to the general collapse of risk positions. This growth is often unstable and quickly replaced by a massive sell-off. Right now, it is impossible to predict the turning point, whether gold will fly above $2000 in the next few days, or if it will not be able to reach this height.

The FxPro Analyst Team

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