The price of gold reached the lower boundary of the rectangle that was described yesterday. Because of the continued strength in the dollar index and weakness in stock markets, gold may accelerate the fall.
Bitcoin, which has become a digital competitor to gold, also moved to the downside and broke down its key support. In the near future this trend is expected to continue. Some analysts prefer to have bitcoins in their portfolio as an alternative to gold. This fact also affects the demand for the yellow metal in the long term.
According to billionaire Michael Saylor, executive chairman and co-founder of MicroStrategy, gold will lose position of a protective asset to bitcoin. Cryptocurrency has more useful properties compared to the yellow metal.
Cryptocurrency has several advantages compared to other assets because of its limited supply and decentralized network. This makes bitcoin cheaper and safer to have in your portfolio than other assets. Gold is expensive to hold, it is centralized and can be stolen. Also, gold miners continue to devalue the metal by increasing its production.
Brokerage houses and banks continue to bet on gold amid the default. Their view is mistaken, if a default happens, gold will fall first, along with all the assets, and only after that will show a rising dynamics. These dynamics are explained by the fact that at the moment of default there will be panic in all markets, and there will be no liquidity anywhere. Therefore, people will look for it in gold, too.
According to economists from Commerzbank, the growing risk of default in the U.S. will support quotes of the yellow metal.
According to analysts at the bank, gold is likely to rise in price more than other assets in case of a U.S. default. Gold itself does not generate interest income, and therefore it does not lose value in a context of easing monetary policy and falling interest rates.
According to the technical analysis, the price of gold is on the lower border of the rectangle. Because of the worsening news background this figure can be broken down in coming trading sessions. Thus, it is possible to reopen short positions to fall by the size of the rectangle. This level corresponds to the price of $1927. Stop-loss can be set at the return to the rectangle and the breakdown of resistance at $1,980.
Decrease in the price of gold:
Take profit – 1927
Stop-loss – 1980