The great divergence between the two financial assets continues – while gold breaks below $1,850, Bitcoin reached $19,000 and rising. What changed that the two assets decoupled so dramatically?
One explanation comes from the end of the pandemic in sight now. With three vaccines already promising strong results and others on the pipeline, the world has hope for back to normal in 2021 and beyond. As such, investors shift from safe-haven to traditional investments. More precisely, they dump gold and buy stocks.
During the pandemic and until the recent vaccine news, gold and Bitcoin represented safe-haven assets. However, only gold reversed, while Bitcoin did not.
Looking beyond this, things become even more complicated if we include U.S. equities. They first rallied on the tech sector outperformance. Next, they rallied on a weak dollar. Now, they rally on new infrastructure spending, new administration, and end of the pandemic in sight. From this perspective, higher stocks mean a lower dollar, and the bullish Bitcoin move makes sense, how about gold?
One thing should stick to traders and investors when looking at the current discrepancy or divergence between the two assets. Gold leads.
Gold broke higher out of an inverted head and shoulders formation six months before the pandemic reached the Western world. More precisely, the price of gold formed the reversal pattern and consolidated for years before it broke higher.
At the time of the breakout, no one really understood why the decoupling. After all, stocks went nowhere. Bitcoin, as well, just hovered around the $10,000.
Gold, instead, rallied from $1,300 to over $2,000. By the time gold reached $2,000, Bitcoin was still around $10,000. What followed was the price of Bitcoin almost doubling, while gold corrected from the all-time high.
In other words, we can easily assume that gold is leading Bitcoin. Unless the recent developments in the price of Bitcoin are here to stay, Bitcoin should follow on the Gold leads and correct too. Considering the recent advance, the correction should respect the proportions.
I am not trying to build a case against Bitcoin. Instead, the arguments here should be revisited on the first sign of Bitcoin’s weakness.
If anything, gold has proved its value through thousands of years of existence. Compared to that, Bitcoin is just in its incipient phases. To reach gold’s status, more is needed than just strong adoption.
Trade BTCUSD and Gold with FXTM