Bitcoin and Gold Correlation Reaches the Highest Level since 2016
- Both digital gold and gold started 2019 with an “amazing rally” and are currently in red
- Trade hopes, upswing in economic indicators, three rate cuts in 2019, QE policy, and a steep climb in Treasury prices driving US stock market up and gold down
- BTC and gold “dancing together” due to “shared macroeconomic backdrop”
It’s not only the Bitcoin that is seeing red. The world’s leading cryptocurrency has been on a downtrend for a month now, ever since BTC surged 42% in late October. But this move got further propelled downwards on Nov. 21 that took us to $6,515 level on Nov 25.
But as pointed out in the beginning, the digital gold isn't alone in this as gold is falling for the sixth day in a row.
Gold remains under pressure and could break down through another key support level of $1,460 from February. However, this could bring new sellers to the market. Optimism about the current negotiations between the US and China and US equity strength has put this pressure on gold that has the volume lower than usual around Thanksgiving.
The bearish pattern reportedly has been in place for a few months however on Tuesday it edged off a two-week low as traders await further developments in the US-China trade negotiation.
There might be mixed messages regarding the trade dispute but not for US stocks. The stock market has been hitting new all-time record highs as investors favor risk-on asset over safe haven asset class.
Along with trade hopes, this US stocks rally is fueled by economic indicators that are on the upswing, three rate cuts in 2019, and Fed adopting QE policy. Also, a steep climb in Treasury prices has made S&P 500 indispensable for investors who are in search of steady income for their holdings.
“Uncanny” resemblance of Bitcoin and Gold
Gold is considered a safe asset in times of economic and political uncertainty which has been up 13% this year due to tariff wars and its impact on global economic growth.
Apart from both the assets pulling back, bitcoin and gold experienced an “amazing rally” at the beginning of this year as well. This “uncanny” resemblance can also be seen in the chart.
“Almost as if they're dancing together,” said Mati Greenspan, founder of investment firm Quantum Economics in his Tuesday newsletter.
The similarities in the chart could be due to “shared macroeconomic backdrop.” The daily correlation between both has been rising pretty steadily for the last few months.
Currently, the correlation between gold and bitcoin is the highest since 2016.
As such, Greenspan said both should be part of a balanced portfolio, especially now when “the Fed is easing again, these two unique assets really compliment each other nicely.”
You can't always predict when the Fed is going to pump $90bn+ in "liquidity" into the market.
At current prices that would be like minting over 12.8M new $BTC instantly.
Luckily, this isn't even possible – and you can rest easy knowing there will only ever be 2.9M more BTC. https://t.co/WYjrXTzBse
— CoinShares 👩🚀 (@CoinSharesCo) November 25, 2019
However, unlike Greenspan, economist and trader Alex Kruger believes Bitcoin is not a store of value rather a highly speculative asset that has no floor and no ceiling.
Poland just got back 100 tons of its gold from the Bank of England.
They realized 'not your vault, not your gold'.
That's something people holding bitcoin on exchanges could learn from.
— Rhythm (@Rhythmtrader) November 26, 2019