Chart Of The Day: Now's The Time To Short Gold Vs. Bitcoin

Chart Of The Day: Now's The Time To Short Gold Vs. Bitcoin

Investing.com  | Jul 28, 2020 15:12

Bitcoin traders have awoken from hibernation to realize the world around them has turned bullish on the digital currency. This week, they found it in themselves to push Bitcoin above the $11,000 threshold for the first time since last August, breaking through resistance that has held in place for a year.

Also, the largest digital currency by market capitalization was mostly abandoned, to drift from early May, the point at which it had mostly recovered March's losses.

There are numerous reasons for the strength in Bitcoin. Renewed confidence after greater regulatory scrutiny increased the stability of the cryptocurrency's infrastructure, as well as better overall stability—the silver lining of the more muted price action between May and July—and lower supply in the wake of the recent halving, for starters.

Add to that, a surge in demand for cryptocurrencies from asset managers, coupled with the current rally in gold. Both have delivered a kicking to the US dollar, which is now hovering around its lowest level in two years versus a basket of major currencies.

This presents a fun question for an analyst. What’s the better trade, gold, or Bitcoin? Perhaps the intuitive and impulsive response is gold, which could be seen as a cause for the rally in the cryptocurrency. However, gold is already in the thick of a hot rally and perhaps has exhausted itself, at least for now, while Bitcoin is just getting started.

Gold is up around +27.7% so far this year, while Bitcoin has risen by around 51.7% in the same period. Then, again, gold has, this week, just hit all-time highs, while Bitcoin must almost double in value from here to reach its December 2017 record peak, giving it much more room to run before fears start to emerge about it being overvalued.

Trading the dollar is where the headache sets in. The greenback is suffering its worst July in a decade and its longest continuous slide in almost 3 years. While newbie traders may excitedly jump on for the ride, they should buckle up and fasten their helmets, because they will experience some serious whipsaws, as short profit-taking and dip-buyers may rattle bears to the core, while bulls say “the buck stops here.”

So, let's pit gold against Bitcoin to eliminate at least one underlying uncertainty.

Weekly XAU/BTC

Bitcoin’s surge was so powerful that it pushed the relative value of gold below the uptrend line that has been in place since June 2019. The MACD has just provided a bearish cross, and the RSI topped out, along with the price, showing there is momentum in the move lower in price.

The March high found resistance in the form of the longer-term uptrend line that has been in place since the lows of December 2017, which confirms the December 2018 peak. This structure suggests that the downtrend that saw a collapse of 95% in the value of gold relative to Bitcoin between April and December 2017 may resume.

Trading Strategies

Conservative traders should wait for a deeper decline below the June 1 low of 0.1685, then wait for a likely corrective rally to retest the anticipated support-turned-resistance from the broken trendline.

Moderate traders may be satisfied with the breakout, but wait for a return move for a better entry, if not for a test of the trend.

Aggressive traders may short at will, providing they understand the trade and its risks and have a plan that suits their account and temperament.

Trade Sample - Short

  • Entry: 0.1800
  • Stop-Loss: 0.1900
  • Risk: 100
  • Target: 0.1500
  • Reward: 300
  • Risk-Reward Ratio: 1:3

Investing.com

Related Articles

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
ravi lakhara
ravi lakhara

gold sell 51300-400 target 44500 stop loss 52700  ... (Read More)

Oct 18, 2020 23:35 GMT· Reply
abhishek jamar
abhishek jamar

where do you see gold in next 10 days  ... (Read More)

Jul 28, 2020 15:53 GMT· 2 · Reply
Ri Ga
Ri Ga

Great piece  ... (Read More)

Jul 28, 2020 14:19 GMT· 1 · Reply
Discussion
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (India) English (Canada) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
NoYes
CancelYes
Saving Changes

+

Download the Investing.com App

Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.

Investing.com is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.

';