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Gold flirts with $4.6k, set for 3rd straight weekly gain - longest winning streak since April
Bitcoin breached $79k, set for biggest weekly advance in over 2 years
Gold and BTC boosted by concerns surrounding rising US government debt costs
Recent price surge may be halted by Fed Chair Warsh's latest policy signals out of Jackson Hole Symposium next Friday (Aug 28th).
Bloomberg model forecasts 72% chance XAUUSD trades between $4426 - $4750 through Fri, Aug 28th.
Don't Miss Out: Follow Bybit Learn's weekly Gold report here; and get updates on major cryptos with "Crypto Insights".
Gold and Bitcoin have each risen to 3-month highs!
XAUUSD+ has hit the psychologically-important $4600 price level for the first time since May 15th.
As for Bitcoin, today it printed prices above $79,000 for the first time since May 16th!
Buy-the-dip pays off, for now
Investors and traders who had bought the dip since end-June have:
enjoyed over 14% in gains since Gold was testing support around $4k
enjoyed more than 34% in gains since Bitcoin last traded below $60k
Technical Analysis: Gold and Bitcoin - ripe for technical pullback?
Both gold and Bitcoin have notably punched above their respective 200-day simple moving averages (SMA), a widely-followed technical indicator.
This breaching of the 200-day SMA may be seen as a "bullish" sign, pointing to further potential gains ahead.
However, their respective 14-day relative strength indexes (RSI) have now reached "overbought" territory.
Traditionally, the 70 level on the RSI marks the textbook threshold for "overbought" conditions, meaning prices rose too much too fast.
In other words, the RSI reaching 70 may send a signal for traders to take profits/expect prices to sharply correct lower soon.
Fundamental Analysis: What drove gold and Bitcoin higher this week?
On Wednesday (August 19th), the US Treasury surprised markets when it announced plans to increase, "by at least double, the size of liquidity support buyback operations".
That means, starting September 9th, the US Treasury may either:
buy back about US$ 28 billion (double the previous tally of US$14 billion) or more of 10-year to 30-year US government bonds a.k.a. Treasuries
and/or
double the per-operation cap from US$ 2 billion to at least US$ 4 billion.
NOTE: This is a reminder that markets are forward-looking in nature = today's prices reflect tomorrow's expectations. So, even though the US Treasury has yet to begin its buybacks, global markets are already reacting first.
The goal of buying back longer-dated US Treasuries is to bring down borrowing costs, including US mortgage rates, to help spur the US economy.
Here is how the mechanism works:
1) US Treasury buys back government debt -> Yields go down
When there's more buying than selling of US Treasuries, its prices go up, and yields go down.
NOTE: Yields are the % rate that the US government pays investors for lending it money (by buying US Treasuries). It's a math thing.
Example:
Investor A buys US$ 1 million in US Treasuries, and receives US$ 45,000 per year in "coupons" (yield: 4.5%).
Investor A sells the same US Treasuries to Investor B for US$ 1.1 million, and Investor B will still receive the same US$ 45,000 expected in annual coupon payments from the US Treasury.
That means the "current yield" on those Treasuries are now 4.09% (45k divided by 1.1 mil) i.e. higher price = lower yields
By buying back longer-dated Treasuries (10Y-30Y), the US Treasury injects cash into the market and pushes long-end yields lower.
2) US yields go down --> US dollar goes down --> Gold and Bitcoin up
Lower yields means US Treasuries become less appealing for global investors, who may in turn sell the US dollar.
Also, lower yields reduce the opportunity cost (investors don't have to give up as much yields) of holding non-yielding assets like gold and Bitcoin.
The weaker dollar makes both gold and bitcoin more affordable to global buyers who need fewer dollars to buy gold / bitcoin.
Markets had been concerned by US debt levels and servicing costs
To put the US government's rising debt burden into numbers:
On Wednesday (Aug 19th), US debt broke above US$ 40 trillion for the first time in history!
Last Tuesday (Aug 18th), the US Treasury paid out about US$ 85 billion in semi-annual coupon payments - its largest such payout on record
Also on Tuesday (Aug 18th) yields on 30-year US Treasuries spiked to 5.336% - its highest levels since 2007
Last week, the auction of 10-year Treasuries drew the highest financing costs since 2007
Also last week, the auction of 30-year Treasuries drew the highest financing costs since 2001
Hence, gold and Bitcoin have responded as ways to guard against the US government's debt woes, even as the US Treasury intends to cap yields.
What's next for Gold and Bitcoin?
Besides the risk of a technical pullback cited above ...
This price surge may face a strong test when Fed Chair Kevin Warsh speaks at the Jackson Hole Symposium a week from today.
Come Friday, August 28th, gold and Bitcoin may tumble if Chair Warsh signals that Fed rate hikes are imminent.
For gold specifically, Bloomberg model forecasts a 72% chance that XAUUSD trades between $4426 - $4750 through Fri, Aug 28th.
As for Bitcoin, here's a recap of the 4 key factors to watch - as published yesterday (Thursday, August 20th).
A return to $82,500 would surpass the break even price for many retail Bitcoin ETF investors, and may entice fresh funds in from the sidelines for BTC to march back towards the psychologically-important $100k level!
DISCLAIMER: This article is provided for general information purposes only and reflects publicly available data and research at the time of writing. It does not constitute investment advice, nor an offer or solicitation to buy or sell any financial instruments or digital assets. Past performance is not indicative of future results. Your ability to access or use any products or services mentioned may be subject to the laws and regulatory requirements of your jurisdiction.
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