Coronavirus Infects Gold and Bitcoin: Both Assets Poised for Risk-Off Break Outs

January 28, 2020 2:01 PM UTC
The coronavirus isn't just infecting humans, it appears that both gold and bitcoin are poised for their very own break outs in 2020.
  • Gold and bitcoin are on the verge of making new 2020 highs.
  • The bitcoin-to-gold ratio is forming its own break out pattern, suggesting that bitcoin will be the superior investment in the near future.
  • Only the next financial crisis will test the validity of these competing hedge assets.

Despite a rising death toll, the coronavirus may not be the only thing ready to break out.

The precious yellow metal and its so-called “digital gold” equivalent are on the verge of escaping containment themselves.

Are gold and bitcoin finally ready to play their parts as global risk-off assets? Only time will tell, but the charts increasingly say yes.

The coronavirus death toll reaches 107. | Source: John Hopkins CSSE

The slide in stocks from mid-January seems to coincide with increased awareness of this potential new pandemic. But gold and bitcoin are marching ever onward as investors run for cover.

What the Charts Say

Bitcoin pierced the $9,100 handle late Monday but only temporarily, as traders took profits. The flagship cryptocurrency is not far from posting a new yearly high in the $9,200 area:

Source: TradingView

That’s excellent news for 2020 buyers, not so much for mid-2019 ones. But despite a deceptively superior-looking gold chart, bitcoin still dominates in the safe haven space.

Is this a post-2009 recession rally all over again? | Source: TradingView

Gold, too, is about the break out after having posted multi-year price gains above $1,600 on Jan. 8.

The commodity’s stellar two-year performance looks strikingly similar to its post-global recession price run.

If that scenario plays out, it may even test its all-time high above $1,900 a troy ounce sometime this year.

The Bitcoin/Gold Ratio

For gold-punting investors who can’t operate their bitcoin wallets, the below chart makes an excellent argument for crypto.

You’ll notice that the bitcoin-to-gold ratio is forming a classic bull flag pattern:

Bitcoin is worth over five times as much as gold. | Source: TradingView

This typically resolves with a big push to the upside. Bitcoin is already worth five times its tangible brother in price terms, and if this pattern plays out, it may be worth upwards of 15 times that.

The Proof Is in the Recessionary Pudding

Gold has long held the mantle of risk-off king. But a real financial panic has not emerged for more than ten years:

Source: Twitter

The decade-long bull market will have to end sometime. Only then will we know the full potential of these competing global hedge assets.

If coronavirus has its way, that may be sooner than we think. Ironically, gold underperformed during the last financial crisis, losing roughly 10% of its value until early 2009.

Bitcoin, on the other hand, has yet to be tested. Until it is, there’s no way to know for sure whether it really is “digital gold.”

Disclaimer: The views expressed in this article do not represent investment or trading advice from CCN.com.

Sam Bourgi edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

Last modified: August 4, 2020 11:32 AM UTC

@trendz

Ryan hails from sunny South Africa. He is fascinated with the broken financial system that threatens to destabilize global markets. He has a keen interest in the history and evolution of money and is always trying to understand the bigger economic picture. When not meticulously looking over the charts, he can be found planning his next road trip or running the trails in his the local nature reserve. Twitter LinkedIn