Bitcoin Weakness Fueling XAU/USD Strength?

Gold, XAU / USD, Treasury Yields, Bitcoin – Talking Points

• Gold continues to move higher despite a post-FOMC intense rebound
• Bitcoin weakness may be causing flows into the yellow metal
• XAU / USD targets next level of resistance at the 1,900 mark

Gold prices rose higher over the past week as the yellow metal returned to the good graces of the market. A wave of weakness in the US dollar helped raise gold prices highs last seen en January and February. Speculation is also growing about the link between gold and Bitcoin, as institutional investors are supposed to abandon the crypto currency for the yellow metal.

Despite the recent strength of gold prices, the minutes of Wednesday’s Federal Open Market Committee (FOMC) appeared to slow inflows as a change of language alluded to an environment where fiscal rates would likely be higher. The modest downward pressure on gold stemmed from the suggestion that if the economic recovery continued at the current pace, discussing a decline in the balance sheet would become appropriate. Withdrawing the balance sheet would likely advance tariff growth, damaging gold.

However Randal K. Quarles, vice president of oversight and regulation of the Federal Reserve System, said Wednesday that a premature reaction to rising prices in the economy could work against the Fed. Mr Quarles alluded to rising inflation seen in the CPI figures released last week. That language is consistent with the broader Fed story, which sees the rise in prices as a temporary phenomenon. However, tax traders pushed yields higher across the curve, although the 10-year yield remains below its April high.

Another interesting story in gold markets – introduced to the main thinking by analysts at JPMorgan – suggests that institutional investors move into gold as they discard the cryptocurrency. A correlation in price between the two assets seems to support this story to some degree. This could be, as some have mentioned before, a fundamental change where Bitcoin replaces gold as a safe haven.

In fact, JPM realized earlier this year that the scenario is possible, although it would be a process that takes years to achieve. Unlike gold, however, cryptocurrencies still face potentially threatening regulatory risks. That risk emerged earlier this week when Chinese government regulators warned against financial institutions using Bitcoin for transactions. China’s move is likely to remain a near-term windfall for Bitcoin, along with other possible regulations from global governments.

Daily XAU / USD Chart against Bitcoin (blue line)

Golden Technical Collapse

Gold tends higher, with eyes on the next major possible barrier at the psychologically impressive 1,900 level. The technical attitude of XAU / USD brightened after the precious metal broke over channel resistance which was in place of the August swing. A break above 1,900 can inject further bullish momentum into the commodity. Alternatively, a lower turn would have traders looking at the recently broken resistance level to become a potential support area.

Golden Daily Chart

Chart created by TradingView

Gold Trading RESOURCES

— Written by Thomas Westwater, Analyst for DailyFX.com

Contact Thomas, use the comments section below or @FxWestwateron Twitter