Gold prices on the receiving end of the crypto craze

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed… read more.
on Feb 22, 2021
  • On Saturday, Bitcoin and Ethereum surpassed $57,000 and $2,000 for the first time respectively.
  • Gold prices are finding resistance at around $1795, currently trading at $1792.79.
  • The stimulus package is likely to heighten the crypto craze while the Fed works to strengthen the dollar.

Gold prices are finding resistance around $1795 as the mainstream demand for cryptocurrencies heightens. On Monday, the precious metal was up by 0.56% to trade at $1792.79. The crypto craze is likely to continue with the $1,400 direct checks included the US relief package. Besides, the stimulus is likely to result in inflation, prompting the Fed to increase interest rates. The subsequent strengthening of the dollar is of concern to investors looking to trade gold.   

gold prices

Crypto craze

The decline in gold prices comes at a time when the crypto craze is at its peak. On Saturday, Bitcoin, the leading cryptocurrency hit and surpassed the $57,000 mark for the first time.

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Since 14th February, Bitcoin has risen by about 17%. Similarly, its price has surged by around 33.40% over the past two weeks. The digital currency recently exceeded a market capitalization of $1 trillion.  

Bitcoin is not the only cryptocurrency that has hit a record high. Ethereum, the second largest crypto surged past $2,000 on Saturday to trade at a record $2,033.08. The craze round Bitcoin and Ethereum has spread to the other cryptocurrencies. On Monday, Dogecoin was up by 6.07% at $0.058243. Similarly, Tether rose by 0.06% to trade at $1.0000. Litecoin, Ripple, Bitcoin Cash, and Stellar also rose by 0.82%, 14.76%, 2.31%, and 3.26% respectively.  

The move by companies such as Tesla and MicroStrategy to purchase huge amounts of crypto has resulted in an overwhelming demand for digital currencies. Tesla recently bought bitcoin worth $1.5 billion. Besides, tweets by Elon Musk pushed Dogecoin to a valuation of $10 billion. On Monday, the Grayscale Bitcoin Trust hit an all-time high of about $58.3205.

Gold vs. Bitcoin

 Gold prices in light of the stimulus package

President Biden’s $1.9 trillion relief package is set to facilitate the recovery of the US recovery. The country’s lawmakers are striving to have the legislation finalized by mid-March. The package includes direct checks of $1,400 per individual. Upon receiving this payment, a substantial number of the beneficiaries are likely to purchase cryptocurrencies. This will push the price of various digital currencies higher while resulting in a decline in gold prices.

At the same time, the direct payments may result in the abundance of the dollar. If that happens, the value of the dollar will go down, forcing the Federal Reserve to increase interest rates. As the dollar strengthens, investors are likely to shift their resources to the dollar. This will cause an unfavorable environment for gold prices.  

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