Bitcoin's Sharp Crash, US Fed's Signals Of Easing Policy: How Gold Prices Will Be Impacted?

Updated: Thursday, May 20, 2021, 14:53 [IST]

Bitcoin's slump or for that matter weakness in any of the asset by a huge quantum has a multiplier effect and amid a recent sharp correction in crytocurrencies (the previous day) (May 19, 2021) as well as the latest take by the Federal Reserve given in its minutes of likely taking on to easing policies, will also influence gold prices.

Here's we will see how and what experts forecast for gold prices:

1. Bitcoin and other altcoins sharp correction impact on gold prices

On May 17, internationally the prices of gold gained $29 and this after breaking an immediate resistance of $1852 suggests that gold price are no longer range bound but are trending higher. Also, there has been a couple of factors working in the favour of gold such as continuing economic distress, rising inflation concern, substandard employment and retail numbers from the US together with geo-political unrest between some of the economies.

Now the latest sharp fall in cryptocurrencies price not to forget the bitcoin currency which fell by a huge 30% to $30K from its highs of just under $65K hit last month, is also pushing for gold's appeal as a safe haven. It is to be noted amid inflation and other concerns such as the volatility in stock markets, cryptocurrencies and particularly bitcoin was being accorded a status similar to gold i.e. of being a hedge against inflation, currency debasement and 'as a store of value' but now this is resulting for a pullback from the bitcoin investment.

Certainly amid volatility, the proceeds from bitcoin investment may find its way to gold which again gains appeal as a safe haven and bitcoin may lose it on the sharp fall.

Suggestion to gold investors:

Gold this expected to test 48,800- Rs 49,400 in this week and any dips close to Rs. 47900 could be an ideal entry point to take long position in the bullion with a stop loss of Rs. 47400

2. US Fed’s likely easing of monetary policy, its impact on rupee and gold:

In its minutes of FOMC meet released on May 19, 2021, the US Fed maintained that it could easy buying in case if the US economy shows strong economic growth momentum at a rapid pace. This easing or tapering of bond buying programme in the US will result in reduced liquidity globally and hence there shall be witnessed outflow from emerging markets in both the debt and equity markets. This outflow of USD outside adds to pressure on the currency.

Rupee-dollar rate movement and understanding its impact on gold prices

Rupee-dollar rates influence gold rate in India,(Note international gold rates do not get influenced by rupee-dollar movement) because gold is primarily imported and if rupee weakens against the dollar then gold's price in rupee terms will trend upwards.

So, the likely tapering or easing of policy by the world's developed economy may be another factor triggering gold rates higher.

International Gold Rates

There is also a case that on easing in liquidity, there will be pressure on the international gold rates, which might fall a big 5 percent from here as said by experts. So, the impact of the currency fall shall not be as drastic as the impact of foreign gold rates on Indian gold rates, which may then see steadiness on negating factors i.e. sharp correction in bitcoin at one end and decline in foreign gold rates on the other.