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The precious metal gold and its digital counterpart, Bitcoin, have been in a safe haven arms race for two-plus years now. The two assets became even more tightly correlated starting on Black Thursday, as investors scrambled searching for the best hedge against inflation.
The original safe haven asset’s uptrend may be coming to an end, or at least preparing for a significant pullback. Could the ongoing correlation make a gold collapse dangerous for crypto? Or will capital flow out of the yellow-colored metal and into Bitcoin?
TD 9 Triggers Sell Setup On Monthly Gold Charts, Massive Change in Trend Possible
Gold peaked amidst the last recession at prices just under $2,000. It took over ten years for the precious metal to revisit those highs and take them out.
Last month, gold prices soared to over $2,000, setting a new all-time high. August’s monthly close last night finished the month out with a long-legged doji, signaling indecision and a possible reversal.
RELATED READING | GOING DIGITAL: BITCOIN BEATS GOLD AND SILVER IN YEAR-TO-DATE RETURNS
The new September monthly open only made the outlook worse for XAUUSD, triggering a 9 sell setup on the TD Sequential indicator. The technical analysis indicator is highly reliable and was designed by Thomas Demark to time potential trend exhaustion and therefore reversals.
XAUUSD Monthly TD Sequential 9 Sell Setup | Source: TradingView
The last major 9 signal was a buy setup the month following the 2015 low. The reversal at the 9-count was so powerful, it left a 1 in its trail, starting a new uptrend count. A full 56 months later, the over 85% ROI uptrend may be coming to an end.
Will The Precious Metal Meltdown Benefit, Or Burn Bitcoin?
Things don’t look very bright for gold, but could the safe-haven asset correcting also be bad for Bitcoin, or something the crypto asset can benefit from?
A recent correlation between gold and the crypto asset would suggest that if gold nosedives, Bitcoin could see a strong correction as well. If gold happens to drag down the first-ever cryptocurrency, the recent bull market beginnings could be in trouble.
But there’s another scenario that isn’t too far-fetched. Capital could flow out of the precious metal and into Bitcoin.
The recent pandemic and gold supply chain challenges have increased demand for commodity-backed tokens representing physical gold ownership. The trend of tying a hard asset to a crypto token has been booming, but Bitcoin already serves the purpose well, and perhaps even better.
RELATED READING | CHECK OUT BITCOIN AND GOLD’S “UNCANNY” CORRELATION DURING POWELL SPEECH
Unlike gold, Bitcoin has a known, finite supply. With talk of Elon Musk smashing precious metals out of asteroids, hedge funds reallocating recent gold profits into Bitcoin, and other major changes in the demand for the metal, a transfer of capital to the crypto market is plausible.
And with violence, protest, and political unrest spilling into the streets all over the world, the need for a non-physical, non-sovereign, safe-haven asset is becoming more apparent by the day.
Featured image from Deposit Photos.
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