- Central banks across the world are going gold shopping again
- The yellow metal’s appeal as the classic inflation edge shines over the highly devalued dollar
- Bitcoin’s stellar reputation as a deflationary asset could pave the way for increased buying pressure
NEW DELHI (CoinChapter.com) — Inflation is here to haunt us all. But central banks have figured out a way to deal with the persistent devaluation of their national currencies. It is the classic move of buying more gold. So major central banks across Europe and Asia are filling up their yellow metal coffers en-masse.
XAUUSD spot rates have bumped as a result. After recording the worst drop since 2013, the ‘gold trend’ has started looking optimistic since June 30. Increased central bank buying activity has pushed yellow metal rates up from the $1750 lows to near $1800. The overall sentiment remains bullish as the XAUUSD pair looks to establish contact with the crucial 20-day EMA.
Lyn Alden of Lyn Alden Asset Investment Strategy noted the same through the inverse correlation of gold price movements and 10-Year US Treasury Note yield rates. “The gold price continues to follow inflation-adjusted ten-year Treasury yields pretty closely inversely.” She said in a tweet on July 3.
Estimates from investment banking giant HSBC show that central banks will continue refilling their gold stashes beyond 400 metric tonnes until 2022 end.
Inflation Makes The Dollar Look Bad
The rising affinity for gold amongst national banks worldwide also shows their collective disdain for the US dollar. May US CPI numbers of 5% demonstrated the most significant jump in consumer prices since 2008 summers. The same has also diminished faith in the ability of the greenback to function as the global store of value.
The USD index (DXY) scalped up to multi-month highs, from lows around 89.93 to 92.62. On the back of the Fed’s short-term interest rate raising decisions by 2023. But the bullish scenario soon lost steam amid the release of a strong US non-farm payrolls report.
With the US dollar going Humpty-dumpty, central banks have chosen gold to insulate themselves against rising inflation.
Bullish Cues For Bitcoin
Bitcoin spot rates posted gains north of $36,000 over the weekend. The flagship cryptocurrency also enjoys a similar reputation as gold when safeguarding against rising inflation woes.
The recent BTC whale action shows why this is true. As per Santiment, Bitcoin supply held by whales (holders possessing 1,000- 10,000 BTC) increased sharply since prices dropped to $30,000.
Even institutional players have dusted off concerns of the recent price drop and have instead used the opportunity to increase their Bitcoin holdings.
The investment rationale is similar to that of central banks entering massive positions in gold. The top cryptocurrency follows a classic accumulation pattern, as pointed out by TradingView analyst VincePrince. The current phase of the design will lead to a breakout in prices.
BTC’s movement within the Bollinger Band squeeze on the daily chart corroborates this observation. Bullish divergence signals given out by the RSI (Relative Strength Indicator) and Bitcoin’s price action combined with the MACD indicator’s bullish trend continuation point to further upsides.