Money, Money, Money - Mine Digital
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Money, Money, Money

May 17, 2020 • 
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A deal may have been struck in oil markets and Bitcoin, Gold and Silver traded higher. USD Treasuries were dropped by Saudi Arabia.

The Numbers

Oil has bounced back significantly this week. After US military installations left Saudi Arabia they agreed to significant cuts in the present and more in a months time. The US industry needs an average of $40 / barrel to be in profit.

Gold is up and silver was very strong this week. Equity markets touched lows and are yet to break down lower.

The Events

Australia has tentatively begun to re-open its economy this week, and is a guinea pig in how the rest of the western world is likely to progress in the coming months. The approach is very conservative and should be as safe as things could be – perhaps fully opening just in time for a second wave of the virus to emerge, which is the next notable event for the coronavirus.

There was a lot of talk about lower equity markets this week, from commentators, large investors, Warren Buffet revealed he was a seller and hadn’t made any purchases and even from the US Fed. We note that retail interest in equity markets has skyrocketed, as has interest in equity index calls (options).

It makes for a potentially weak equity index that many traders expected to break lower the previous week. Although our personal view includes the potential to drift sideways and higher, the market structure may suggest weakness to the downside. Things will begin to get very interesting in the case of a collapse in equity asset prices.

Gold broke out higher this week in a modest way, with reports on US Treasury selling for gold buying, although it has been a fairly tame response from gold so far. Silver had a terrific week, after we rubbished it as money last newsletter. We continue to question whether it will be picked up as money medium and long-term, against its historical use and relationship with Gold.

Bitcoin

Bitcoin looks to be consolidating around its currency price in a range between 8100 and 10,000.

The asset feels tangibly bullish after the halving supply-shock, endorsement from Paul Tudor-Jones and JP Morgan following his lead. With these notable developments opening the door for institutional finance to be interested and involved, it is easy to imagine a significant price improvement in the medium term.

With Gold breaking out last week and USD Treasuries being sold down, we take the ‘money’ trade to be beginning, a trade that should be favourable to Bitcoin, especially in its new context institutionally.

Although we can suggest a consolidation occuring over the last week, a short-term break higher would not be suprising.

BTC/USD on the Daily

If we were to look longer-term, we can see what traders who want to be short are looking at, and where they see room to the downside (the upside trade is very clear – above the long-term down-trend).

Longer-term still shows a consolidation and perhaps we should be careful to leave something in the tank to pick the asset up at better prices as shown below.

We might give the bullish scenario 75% to a 25% bearish scenario.

BTCUSD Weekly Chart

Volumes

Volumes have been increasing the last 2 weeks, which we take as a proof of the more bullish scenario.

Sentiment

Sentiment has softened slightly from last week back to a weak fear. As long as retail is fearful and institutions are buying it is a strong bullish combination for the asset.

BTC Dominance

BTC Dominance is another area where institutional entry shows up. Where digital asset veterans are aware of a multitude of interesting projects, institutional flows must show up in BTC first. So perhaps we can contextualise a recent change in direction of BTC dominance (higher) as coming from this type of interest.

In addition to this, short-sellers have not been beaten out of the market yet, and in fact are re-entering around $10k. We think that these market participants are the single largest factor in price suppression at the moment, and expect BTC Dominance to spike to unexpected levels before it is resolved.

Money

The money trade is heating up at the moment, where USD Treasuries have been sold off while Gold, Silver, Bitcoin and Oil have appreciated. This in spite of a strong dollar the last week.

Gold

Gold broke out of its consolidation this week but in a relatively weak way.

Gold / USD 1hr Chart

We are not sure if we are looking at a flag-type setup. The big picture story is supportive of a move like that.

Gold / USD on the Daily

The levels are a bit higher up longer-term

Gold / USD On the Weekly Chart

Daily Gold/Silver Ratio

Perhaps one source of selling pressure on Gold has been the perception of a high Gold/Silver Ratio. Although we don’t like the trade, if it keeps coming off (and silver keeps appreciating) it gives Gold more room for strength.

DXY

The Dollar Index has continued to trade sideways, even threatening to break-up higher after we thought it would be weaker last week.

TIPS

Tips have started attracting a bid this week as Gold broke-out

Written By: Thomas Kuhn, CFA

Thomas is a 12-year veteran of financial markets working to bring digital assets into the fold of traditional financial markets.  With an interest in fundamental analysis with a technical overlay, Thomas actively takes positions in the markets he covers. As well as producing education for traders, Thomas writes for Mine Digital, CFA Asia-Pacific Research Exchange and Hackernoon.

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