Key Takeaways:
- Gold (XAU) neared the $2,000 benchmark, but retraced hours later.
- The yellow metal soared in unison with dollar index (DXY), despite the Fed's tapering policy.
- Bitcoin, and the crypto market overall could benefit in short-term, but remain correlated with risk-on assets.
YEREVAN (CoinChapter.com) – Gold (XAU) traded at $1,977 for an ounce in Monday’s New York session after briefly peaking at just below $2,000 hours earlier. Moreover, the safe-haven asset’s spot price has seen a 3% growth in the previous two weeks, while the markets focused on the Federal Reserve’s anti-inflation policy.
Gold and broad dollar on the rise
In short, as CoinChapter previously reported, the Fed signaled its intent to reach neutrality in 2022 by starting an aggressive quantitative tightening regime. However, according to the latest CPI report, the inflation rate climbed to 8.5%, dampening the hopes for a “quick recovery.”
Thus, investors responded to the uncertainty by directing their funds into safe-haven assets like precious metals. Subsequently, the abundance of inflow into the gold market boosted the XAU spot price.
Also read: Crypto market drops 6% after Fed announces $1.1T yearly quantitative tightening.
Notably, the Fed’s tapering policy also strengthened the dollar index (DXY). In detail, the DXY, also known as the broad dollar, measures USD’s strength compared to a basket of foreign currencies. After Fed officials doubled down on the hawkish policies, the dollar index soared to a 2-year high of $100, beating previous estimations.
The dollar might be the “fairest of them all” compared to other currencies globally, but the high inflation rate raised concerns about the greenback’s declining buying power.
Additionally, an analyst at investment bank TD Securities agreed with the outlook, saying that investors and traders are “happy to retain some optionality” against the government’s declared plan to fight inflation.
Also read: Inflation hits 8.5%, crushing ‘transitory’ hopes – what about the crypto market?
Meanwhile, the crypto market remained undecisive amid the heightened demand for sanctuary assets. Bitcoin (BTC) bobbed around the $40,000 margin, hinting at a possible uptrend.
Will Bitcoin (BTC) benefit?
The flagship cryptocurrency maintained its previously noted correlation with risk-on assets. Typically, risk markets like equities, and since late 2021, digital assets, tend to flourish in times of economic stability, as investors are more open to a ‘gamble.’
Conversely, global turmoil and market volatility call for secure options to hedge funds, such as the gold market, which has been a historic sanctuary for centuries. Thus, Bitcoin’s departure from safe-havens and its inclusion in the risk-on category paved the way for more consolidation.
Also read: Bitcoin (BTC) wobbles around $40K while seeing a heightened whale activity — what to expect?
Nonetheless, the BTC/USD chart could see a short-term uptrend based on the ‘Rising Channel’ setup. The formation entails two parallel trendlines that enclose the price action. The resistance line caps upside impulses, while the support trendline prevents breakdowns.
The Rising Channel does not predict a long-term bias after a digital asset leaves the pattern. However, it could be instrumental in determining short-term price vectors. Thus, BTC could rise to the Channel’s mid-range and possibly reach the resistance, bagging a 20% value advance.
Also read: Mastercard and Nexo launch crypto-backed credit cards, pushing Bitcoin (BTC) back above $40K.
Despite short-term bullish technicals, Bitcoin price remains dependent on the overall market climate. Additionally, the Fed’s tapering policy significantly affects the digital asset sector, along with the dollar’s stability and the precious metal market. So the upcoming sessions will show if Bitcoin’s bullish scenario has merit.
