Is gold having a reversed USD direction once again?

In a time when uncertainty heightens due to the worsening US-Sino trade relationships and the instability of the Turkish political scene and economy, in a time when stock-markets drop one would expect the bullion to emerge as a safe haven, have increased demand as well as prices that rally. However that was not the case in the past few days. On the contrary, the price of the precious metal dropped by almost a 100 USD and set an 18 month record low price of 1160 USD.

So has the precious metal lost its shine, is it no longer to be considered as a safe haven? Analysts, saw a positive correlation between the S&P 500 and gold for the past few days. We would also share the opinion that there seems to be a negative correlation between the USD and gold at works in the past few days. If the USD strengthened due to the tensions of the US-Sino trade relationships, as well as the worsening Turkish-US relations, then one could interpret it as a sign that the market may be seeing the case for the US economy to be in an elevated position against its rivals and being able to overcome victoriously both fronts. It would be evident that as on Wednesday, the USD had reached one of its peaks, gold reached one of its lows, while on Thursday as the USD seemed to stabilize or even weaken somewhat during the Asian session, the bullion’s prices seemed to recover, as if it was confirming the negative correlation between the USD and gold once again.

Other analysts, also raised the idea that gold may have been for sale by central banks for emerging countries. An idea which could make some sense if they would try to monetize dollar reserves in order to support their currencies, as in the current situation. Also, analysts point out that gold’s nature may have changed over the years and may no longer be so sensitive to geopolitical changes, but feeds more on news regarding the actions of central banks, especially the Fed’s. In both cases, the arguments for the negative USD-Gold correlation could remain intact if not strengthen. Apart from theorizing, it should be noted that daily average trading volumes for gold in Turkey doubled recently and probably in face of the country’s ongoing crisis, we could expect an increase in demand for the precious metal, at least locally. Also uncertainty could be rising in gold mining as South African Unions have rejected the latest pay increases offered from four producers as negotiations were drawing to an end. Talks could resume next week however the outcome remains uncertain. Sticking to South Africa and gold mining, bear in mind that Gold Fields Ltd has to come up with another plan to save its massive South Deep mine and further negative headlines could influence gold’s prices. On another positive note for gold, on Wednesday Australia’s Perth Mint is about to launch a new gold backed ETF on the NYSE, practically testing the investor’s appetite for the bullion.

Gold tumbled in the past week, reaching the 18 month low of 1160 USD support line, however rebounced and tested the 1180 resistance line today. The precious metal’s price action remained below the downward trend line, incepted since the 10th of August and tested it with little success, three times, with its latest try being today. Hence, technically we retain a bearish bias currently, for gold’s prices and in order to lift in favor of a sideways movement or even a bullish market, we would first require the bullion’s prices to break the prementioned downward trend-line. We would also like to point out, that the RSI indicator in the 4 hour chart remains near the reading of 30, implying a relatively overcrowded short position. Should the bears continue to drive the market, we could see the pair breaking once again the 1170 support line aiming for the 1160 support barrier. On the other hand should the precious metal’s price direction be dictated by the bulls, we could see the pair breaking the 1180 resistance line opening the way for the 1192 resistance hurdle maybe even taking an aim of the 1208 resistance area.

Bitcoin stabilizes after July rally

The digital currency is a non-correlated asset very similar to metals except it’s a lot easier to transport and it can actually be used to purchase items.

In the previous days, we saw US Securities and Exchange Commission reject the bitcoin traded ETF and subsequently dropped the crypto market confidence a bit. A huge wave of news reports was released on the matter, which in our opinion is a waste of time, keeping in mind that Crypto ETFs would most probably return to claim allowance again and ultimately succeed. Very importantly, the private markets regarding digital coin investing is currently massive with huge amounts of money being invested. Bitcoin prices fell as the news was released but held upwards as the coin corrected later on.

We set off to explore some points that could have been questioned by the authorities in order to finally reject the ETF’s license. Until very recently, security among the Crypto market was of high importance and concern. Cyber theft has taken place many times in 2018, especially in Asia which also caused many people to cash out the Crypto industry stating reliability was absent. It could be the case that over half a billion USD worth of Crypto’s has been stolen in the previous years, and even though people are now keeping coins offline, security has not been restored completely .

Second, is the fact that vulnerability of crypto currency markets towards sharp price moves creates uncertainty but also an easy pray for price manipulation.
Third, the anonymity of transactions is one of the key founding principles of Bitcoin that remains a huge barrier within the industry. The absence of transparency on the distributed ledger technology is seen by some industry participants as a limitation to broader acceptance by both institutional and individual investors, but also regulators.

On another front and according to Reuters, IBM and nine financial institutions, including Barclays Plc and Citigroup Inc., are testing a platform to access blockchain-based applications. The platform, will offer services like customer compliance checks, approval and agreement details and collateral management, it was said. Ledger Connect which is the firm offering this platform, aims to promote the use of blockchain-based software to other companies.

On a separate note, according to legend trader and hedge fund owner Bill Miller there are only 17M bitcoin outstanding currently. This event is now causing more and more investors to move into areas with cheap energy costs. Areas in Northern Virginia and Dallas-Fort Worth have been acquired by firms to bring out crypto mining activities. These sites are data centers with huge energy capacities and airtight security and are very similar to rigs in the Oil industry, just these aim for Bitcoins and use megawatts as fuel. Many firms are now joining the crypto mining industry boosting demand for the digital currencies but at the same time could be enacting a huge bull market.
As a conclusion, we would like to stress the opinion that crypto currencies have the potential of becoming all these things that they are not at the moment. We could see digital coins becoming a payment method, we could see them utilized as a real currency but most importantly coins could be accepted by central banks and regulatory bodies as an innovative asset.

During the past and the current week, BTC/USD broke one of our support levels which has now turned to Resistance $8,186. This minor drop was due to the rejection of the Bitcoin traded ETF.

If traders continue to purchase BTC/USD they could force it to move even higher to the $8,186 resistance level and even surpass it aiming for the $8,580 resistance barrier. We support the opinion that, if the digital asset is to move higher, it could do it gradually and not at once as this was the case until now in previous weeks.

On the opposite side, if traders decide to sell the digital coin we could see BTC/USD break the $7,690 Support level and aim for the $7,120 support hurdle.

The other scenario is for the Crypto to remain between the $8,186 resistance level and the $7,690 Support barrier swinging from level to level. This could also be the case due to the fact that the RSI indicator is on the reading of level 50 which indicates a rather uncertain market.

Other economic highlights for today (7/27/2018)

In the American session from the US we get the preliminary GDP growth rate for Q2, which is forecasted to accelerate substantially and could provide some support for the USD.

Also, we get the US Core PCE prices for Q2, the final release of the Michigan Consumer Sentiment indicator for July and the Baker Hughes Oil Rig Count figure.

Also we would like to point out that Bitcoin dropped yesterday probably on the news that a US Bitcoin ETF was rejected by the Securities and Exchange Committee.