Could there be another reason gold has been under selling pressure?

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Gold prices continue to drift lower as the U.S. dollar continues to gain strength and market sentiment favors the high likelihood that the Federal Reserve will continue on its course to begin tapering is to asset purchases as early as November of this year.

Many analysts have cited three primary variables for the recent downside in gold, the two that we have just mentioned a strong dollar and Federal Reserve tapering. The third catalyst is rising yields on 10-year Treasury notes. That being said, U.S. 10-year Treasury notes are not trading today due to a holiday, but they have been rallying to higher yields recently. The higher yields are a direct result of market sentiment leaning towards the Federal Reserve beginning the process of tapering their asset purchases this year.

What is most interesting is that the jobs report that was just released last week came in much under the forecasts by economists polled by both the Dow and Reuters. The numbers were lower than the month disappointing of August, which indicated approximately 243,000 new jobs were added. September’s jobs were approximately 194,000, with forecasts expecting between 450,000 and 500,000. Nonetheless, even with the extremely tepid economic recovery seen by the low numbers of new jobs added gold continues to trade lower.

The dollar has become a safe-haven asset as yields rise in debt instruments of the United States. However, I don’t believe this is the only reason we see the recent decline in gold, even when there is data supporting higher pricing.

One possible reason gold continues to decline is the incredible assent of the cryptocurrency’s Bitcoin. Bitcoin futures continue their dramatic rise gaining $2705 today, an increase of 4.90%, with a single coin now valued at $57,885. The chart below is a comparison chart with bitcoin and gold displayed side-by-side horizontally. One is created from a daily closing price line chart, a Japanese candlestick chart, and a Japanese average chart called a Heiken Ashi.

Both charts clearly demonstrate that as bitcoin has been in rally mode there is a negative correlation with gold moving lower. In fact, at the beginning of 2021, gold futures were trading at approximately $1920 per ounce and Bitcoin was priced at $40,000. By the beginning of March this year, gold hit a double bottom at approximately $1680 concurrently. Bitcoin was trading well above $50,000. No matter what format used to create the chart, be it a line, bar chart or a Japanese candlestick chart, they all clearly show the negative correlation between gold and bitcoin.

This can easily be a large component of speculative money moving out of gold into cryptocurrencies, specifically Bitcoin. While other factors have been prominently cited as the underlying forces taking gold lower, I suggest that one does not see the full picture without adding bitcoin into the equation.

 

Wishing you, as always, good trading and good health,

Gary S. Wagner - Executive Producer