Spot gold is inching towards forming a “Death Cross” on its daily chart, which may transform its ongoing downside correction into a full-fledged bear trend.
A death cross occurs when an asset’s short-term moving average falls below its long-term moving average. Many analysts and strategists look at the crossover as a sign of a sell-off wave, leading to a long-term downside move.
Gold risks forming Death Cross after an $80 decline. Source: XAUUSD on TradingView.com
Presently, gold’s 50-day moving average (50-DMA) stands at $1,880, while its 200-day moving average is at $$1,801. The precious metal’s latest drop after a flurry of positive COVID-19 vaccine reports indicates that it may cover the $79 gap between its moving averages at least by the next quarter, thus forming a death cross.
Bitcoin
A bearish setup in the gold market may leave Bitcoin under a similar downside risk.
In retrospect, the flagship cryptocurrency lags the precious metal but on different timeframes. In 2020, the BTC/USD exchange rate on a weekly timeframe has shown evidence of tailing the XAU/USD exchange rate on monthly charts.
TradingShot, an independent analysis firm, spotted the similarity first, using Fibonacci retracement levels and Relative Strength Indexes.
Bitcoin-Gold correlation since September 2018 (Screenshot from November 25). Source: BTCUSD on TradingView.com
According to the chart above, Bitcoin’s record high sits somewhere near its 1.1382 Fib level — around $25,000. But the cryptocurrency risks correcting lower after achieving it, just as gold did after establishing its all-time high near $2,075. The analogy takes cues from the visible similarity between the asset’s previous price trends.
Bitcoin is showing signs of correction already, having hit its best level to date at $19,873 on November 30 (data from Coinbase). It is now down by up to 7.74 percent, holding $19,000 as its interim support for the next leg up towards $20,000 and beyond.
Bulls Up
To be sure, many bullish investors still expect both gold and Bitcoin to rally further higher, as long as central banks around the world keep printing money to inject liquidity into their virus-hit economies. Meanwhile, the benchmark Federal Reserve has already committed to keep interest rates near zero and buy government bonds as long as required.
That fundamentally prompts investors to move their capital from poor yielding debts and cash instruments to riskier safe-havens like stocks, gold, and Bitcoin.
I am as bullish on Bitcoin as anybody but looking back there is a high chance that this will mark the bottom in precious metals,” said Florian Kössler, the head of the strategy at Friedrich & Partner. “From a game theory perspective, I would advise owning Bitcoin, Gold, and Silver.”
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