Gold Goes for Recovery After Bitcoin, Trump-Fueled Pullbacks

Gold Talking Points:

• Last month was gold’s first red monthly outing since January of this year.
• Gold prices took a big hit after the Presidential election and likely a culprit is capital flows into Bitcoin as a different anti-fiat vehicle. But is this a world where both gold and bitcoin bulls can co-exist?
• I look at short-term price action and related setups of both gold and Bitcoin in each Tuesday webinar, and you’re welcome to join: Click here for registration information.

Weakness in gold is something that hasn’t been a big part of 2024, until recently, at least.

While gold spent the better part of the past four years with resistance at the $2k level, bulls began to chew through that in the opening months of the near year, after which a massive topside drive developed in February that largely ran until the November open. To be sure, gold was overbought from a variety of vantage points: RSI went into overbought territory on the monthly chart back in April, but that wasn’t a hindrance as buyers just continued and continued to push.

In February, it was a comment from Chicago Fed President Austan Goolsbee that seemed to turn the tide. It took place just a day after an above-expected US CPI print and in response, gold has tested below the $2k level. But, a day after that data release, Goolsbee said that markets shouldn’t get ‘flipped out’ about a single data point and in response reactions showed across many macro markets. The US Dollar started to head lower, stocks higher, and gold broke back-above the $2k level and hasn’t traded below it since.

As the Fed continued to sound dovish even with inflation stubbornly stalling at above-target levels, gold prices flew higher for much of the year. And when inflation did finally start to cooperate with the Fed’s dovish lean, there was another reason for gold prices to shoot-higher, and that showed in a massive rally in October on the heels of a US CPI print when bulls defended the 2600 level in spot XAU/USD.

But the 2800 level is a spot that gold bulls were unable to take-out as the metal started to stall about $10 shy of that price in late-October, after which profit taking started to take-over.

Gold Weekly Chart

Gold: 2k Drama into 2024 Breakout

That 2k resistance hold in gold from the summer of 2020 until earlier this year remains of interest.

Initially, in response to the monetary stimulus from the pandemic, gold prices caught a strong bid and rode that from April of 2020 into August when, eventually, spot gold prices traded above the $2k level for the first time ever.

But abruptly and suddenly a retracement began to show shortly after. At the time, Bitcoin was struggling to get back above the 12k level but once it did, a major rally began to take-over in cryptocurrencies and all-of-the-sudden gold headlines were relegated away from the front page.

In March of 2022, gold once again tried to get above the 2k level and this time, there was a geopolitical drive as Russia had started to line the Ukrainian border with tanks. This was also around the time that the Fed had started to hike rates which brought along a trend of strength to the US Dollar. And, once again, gold softened from the 2k resistance that had held the highs a couple of years prior.

In 2023, another worrisome episode showed as US regional banks started to show the sting from persistent and aggressive FOMC rate hikes, eroding the value of Treasury portfolios and threatening to up-end the banking sector in the United States. Gold tested above 2k again but, like the prior two episodes, bulls were unable to hold the bid above the big figure and a pullback developed.

But – that episode was a bit different, as the pullback that followed was shallower than the prior two and this time, it came along with a softening FOMC that seemed concerned that higher rates in the US could cause more damage to the banking sector.

It was a year ago that a breakout developed in spot gold prices shortly after a Sunday open, and that failed to continue; but it’s what happened after that led into this year’s strength as all-of-the-sudden, that 2k level started to show as support. And that remained for the next couple of months until the Austan Goolsbee comment in mid-February.

Gold Monthly Price Chart

Gold & Bitcoin

The Fed was pedal-to-the-floor with accommodation in late-2020 and through most of 2021. It was only towards the end of 2021 when the bank started to lay the groundwork for rate hikes, finally admitting that inflation wasn’t transitory and that they would likely need to begin tightening rates to get it under control.

But as the Fed was heavy handed with stimulus, it’s almost as of attention tilted away from gold in August of 2020, and into Bitcoin. We can see this on the below chart, with the black line (Bitcoin) converging with the red line (gold prices).

In November of 2021, as the Fed started to lay the groundwork for eventual rate hikes, the bid came out of Bitcoin in a manner similar to what would normally be expected in gold. And in 2022 as the Fed actually started to hike, both markets were hit aggressively (purple box).

In Q4 of 2022, the Fed started to hint that they felt they had a handle on inflation, and that they would be able to moderate from the 75 bp rate hikes that they had started to push earlier in the year. Both markets bottomed around that time.

Earlier this year as gold prices came to life in a big way, Bitcoin lagged; until recently, at least.

Bitcoin & Gold Daily Chart

Gold post-Trump

President Trump courted the crypto crowd ahead of his November election win. And as I wrote at the time, Bitcoin seemed like the big winner from the election and not quite a month later, that certainly looks to be the case.

But, interestingly, gold has experienced its first notable sell-off of 2024 as Bitcoin has stolen the attention from the anti-fiat crowd, very similar to what showed in the summer of 2020, when BTC/USD was struggling to get above the $12k figure as gold put in its first ever test of the $2k psychological level.

It was just after the election that bearish pressure started to show in gold, with an initial move down to the 2650 level, followed by another sell-off to test below the 2550 level. Eventually, support showed at the 50% mark of the June-October major move. That led into a really strong week, the strongest weekly showing for gold since March of 2023 – right around when the regional banking crisis was beginning to show in U.S. markets.

That rally in gold ran until the 14.4% retracement of the June-October move came in to hold the highs. And then last week was one really bad day for bulls on Monday, followed by a grasping for support.

Gold Daily Price Chart

Gold Shorter-Term

At this point bulls seem to be showing a continued effort to hold support in the 2617-2621 zone. This was prior resistance-turned-support and it helped to hold the lows last week after that Monday sell-off.

Buyers attempted to take control after, but they were continually thwarted by resistance, first at the 2643-2650 zone and then, later last week at the 2660-2666 zone.

The pullback from that resistance has since held a higher-low and at this point there’s a bullish channel that’s been in-play over the past week.

So, from a technical perspective, strength can still be argued, particularly as long as buyers can hold support above the 2617-2621 zone. The bigger question is whether they’ll be able to chew through the 2643-2650 resistance that’s currently in-play, or the 2660-2666 resistance that sits overhead. For shorter-term higher-low support potential, the 2332 level remains of note and if buyers can hold that, the door is open for another test of both resistance zones.

Gold Four-Hour Price Chart

Gold v/s Bitcoin Bigger Picture

Since I spent the bulk of this article highlighting the dynamic between gold and Bitcoin, I wanted to speak to this before I finished. I do think that both markets can see strength co-exist and from the above overlay with both markets, there were clearly some environments where that remained the case, particularly when the Fed was laying the groundwork for policy softening. But given that it had priced in through most of the year in gold and then more recently after the Trump election win in Bitcoin, it makes sense that we’ve seen a bit of divergence.

But I try to look at each market independently and I’m doubtful of oncoming austerity from an incoming Trump administration, and that’s something that I think could support gold prices going forward. The pricing in dynamic could be a bit jagged however given how aggressively buyers had run topside trends in gold leading into November. And with Bitcoin, I think we’re seeing a degree of projection from expected regulatory softening which further speaks to the potential for both markets to see strength co-exist, bigger picture.

--- written by James Stanley, Senior Strategist