Gold and Bitcoin are severely depegged! Gold prices are overheating and experiencing a sharp pullback, with Bitcoin at 107,500 support.

The price of gold (XAU) has fallen nearly 7% since its all-time high, marking the largest drop in 12 years. However, the price of Bitcoin (BTC) has maintained the support level of $107,500, demonstrating remarkable resilience. Although the two previously showed a positive correlation, the current indicators show a correlation of 0.19, indicating almost no correlation.

Gold's 12-Year Worst Drop of $2.5 Trillion Evaporated

(Source: Trading View)

The price of gold (XAU) has rapidly risen over the past two years, soaring more than 115%, reaching a historic high of $4,381. Once the gold price breaks through the long-term resistance level of $1,850 (which has acted as a resistance since 2011), the upward trend of gold prices becomes parabolic. During this upward trend, gold has only experienced minor pullbacks, demonstrating the strength of its upward momentum.

Despite these bullish signs, the two-week Relative Strength Index (RSI) is at historical highs, and momentum indicators are showing extremely overbought readings. Wave counts suggest that gold is nearing the top of a five-wave rally that began in December 2016. If the wave counts are accurate, gold will experience a significant pullback in the coming weeks. This analysis based on Elliott Wave Theory provides a theoretical basis for a technical correction in gold.

The daily chart also shows that gold formed a bearish engulfing candlestick on October 21, marking the beginning of the current downtrend. A similar decline occurred in April, leading to a two-week adjustment. The bearish engulfing is one of the most reliable reversal signals in technical analysis, indicating that the selling pressure has overwhelmed the buying pressure when a large bearish candle completely engulfs the previous bullish candle.

As the daily RSI has also fallen below 70, this may lead to a drop in gold prices, retesting the support level between $3,605 and $3,755. This price range represents key Fibonacci retracement levels and historical trading volume areas from the previous uptrend. Gold has formed a double top near the resistance level of $4,380, and this pattern indicates that after a strong rebound driven by safe-haven demand and expectations of interest rate cuts, gold prices have shown signs of weakness.

Three Major Technical Signals of the Gold Big Dump:

RSI Extremely Overbought: After the two-week RSI reached an all-time high, it has retreated, and a correction from overbought conditions is inevitable.

Bearish Engulfing Pattern: A strong sell signal appeared on the daily chart on October 21.

Five-wave structure completed: Elliott Wave Theory indicates that the upward cycle since 2016 is nearing its end.

Double Top Pattern Confirmation: Two failed attempts to reach the peak near $4,380 confirm a trend reversal.

Will the recent fall in gold prices have a positive impact on Bitcoin prices? This is the question the market is most concerned about. Traditional views suggest that when gold falls, funds may flow into “digital gold” Bitcoin. However, data shows the situation may be more complex.

Bitcoin 107,000 USD support line holds firm but concerns arise

(Source: Trading View)

Similar to gold, the price of Bitcoin has been falling since it reached an all-time high on October 6, two weeks ago. Before the fall of Bitcoin, there was a bearish divergence in the RSI and MACD (orange), which has been forming since the beginning of this year. Bearish divergence refers to a situation where the price reaches a new high but the momentum indicators fail to reach a new high, indicating that the upward momentum is weakening.

Currently, the Bitcoin price is trading within its most critical support level of 107,000 USD, and whether it breaks below may determine the direction of the entire future trend. This price level is the intersection of multiple technical factors and a psychological round number. From on-chain data, a large amount of cost basis has accumulated in the range of 107,000 to 108,000 USD, and these holders have the motivation to defend when the price retreats.

By closely observing the trend since the ATH, it can be seen that five waves of decline (in red) have already been completed, indicating that the crash was impulsive. Although a rebound started afterward, the Bitcoin price failed to break through the diagonal resistance trend line. Even so, the entire rebound may just be an ABC correction, which will not lead to a breakout, but will end at the 0.5-0.618 Fibonacci retracement resistance level.

ABC correction is a term in Elliott Wave Theory, referring to the three-wave corrective pattern after a trend reversal. Wave A declines, Wave B rebounds, and Wave C declines again. If the current rebound is only Wave B, it suggests that Bitcoin may face further decline in Wave C. This technical concern adds more pressure testing for Bitcoin to hold the support level at $107,000.

However, the performance of Bitcoin relative to gold is still commendable. In the context of gold's big dump of 7%, Bitcoin only experienced a mild fall, indicating that its market structure is more resilient than that of gold. This resilience may stem from the continued buying pressure from spot ETFs, the long-term holding strategies of institutional investors, and the confidence in Bitcoin as the long-term narrative of “digital gold.”

The Deep Implications of the Severe Decoupling Between Gold and Bitcoin

(Source: Trading View)

Despite recent excellent performance, since the beginning of 2024, the performance of gold prices (green) has been inferior to that of Bitcoin (black). Bitcoin has risen by 150%, while gold has surged by 100%. This performance difference shows that Bitcoin has a stronger appeal in this cycle. After the recent consolidation period of gold ended, it has performed well since August (black line), at one point narrowing the gap with Bitcoin.

Interestingly, while these assets were almost perfectly positively correlated at the beginning of 2024, that is not the case now. Bitcoin and gold once had a period of negative correlation, but the current correlation indicated is 0.19, meaning there is almost no correlation. Negative correlation would suggest that the recent big dump in gold could lead to a rise in Bitcoin prices, but the indicator readings suggest that may not be the case.

The correlation approaching zero is of great significance for portfolio management. When two assets have high correlation, the diversification benefits they provide are limited. However, when the correlation drops close to zero, holding both gold and Bitcoin simultaneously can effectively reduce portfolio volatility. If gold falls while Bitcoin remains flat or rises, the overall losses for investors will be hedged.

Although the parabolic trend of gold seems to be losing momentum, Bitcoin's resilience near its key support level suggests a potential shift in market sentiment. However, the correlation between the two assets is weakening, so a drop in gold is unlikely to trigger a breakout in Bitcoin. Instead, each asset may move independently, regardless of the price movements of other assets. This means that Bitcoin's future trend will depend more on the catalysts within the crypto market itself, rather than the performance of traditional safe-haven assets.