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Bitcoin, Gold to see higher volatility

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By Naeem Aslam  

Friday is all about one thing, the mother of all economic data which is most important to traders of gold and Bitcoin.

The U.S. will disclose the most crucial economic reading, the non-farm payrolls unemployment figure. The Federal Reserve and other market participants place a high value on this information, considering that the labour market is a significant component of the Fed’s mission, and could have an impact on the central bank’s monetary policy.

In contrast to the previous figure of 175,000, the projection for the last NFP number is really 182,000. In many respects, we have already created a low barrier, and the data that was released by ADP this week shows that there is a larger probability of disappointment in the figure.

This is a component that has already altered the expectations of the market that does not take into account the likelihood of a figure that is substantially lower than what is currently anticipated, resulting in some market volatility.

In the event that the number is significantly different from the projection, we may be looking at two probable outcomes.

First, market participants may anticipate that a poor data print may compel the Federal Reserve to decrease interest rates, which would then lead to an increase in the prices of gold and bitcoin after the first emotional response. This is because of the DXY dollar index’s possible plunge.

The second scenario is one in which the data continues to fall short of expectations by a significant margin. In this scenario, traders and investors may lose faith in the Fed’s capacity to manage the problem, which would result in more harm to its image.

As a result, we may see investors racing to acquire safe-haven assets, and gold naturally occupies the highest position on that ladder. This implies that the price of gold might go up, and the price of bitcoin might go up as well.

Other possible outcomes

The fact that gold and bitcoin are both quite sensitive to the data from the U.S., particularly the NFP, the most significant component of the Fed’s monetary policy, indicates that the data is likely to bring about some more intriguing movements for both asset classes.

If the statistics on the number of people working in America is robust, we may assume that the dollar index will increase because market participants think that the Fed will keep interest rates at higher levels for a longer length of time.

The strength of the dollar index, on the other hand, often results in a decrease in the prices of both gold and bitcoin. Therefore, this scenario could not be the best solution for gold prices.

Bitcoin, on the other hand, has a significant connection with risky assets, which means that it has the potential to go upward as well, depending on what market participants take away from the statistics about the US labour force participation rate.

Bitcoin Chart by Exness

 

Naeem Aslam is Chief Investment Officer at Zaye Capital Markets.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Zaye Capital Markets.