Here Is What Is Moving Gold And Bitcoin

We have seen some big swings in gold and Bitcoin since New Years'. Gold initially rallied last week then turned down, while Bitcoin soared. In fact, it has gone up so much that I’m seeing random people on my Facebook friends list who don’t trade markets or post about them talk about Bitcoin.

I also have gotten emails from people asking me if the rise in Bitcoin is causing gold to drop.

The answer is no.

The reason why I can say that with confidence is that you can mathematically measure the relationship between different things in the market and whether or not they influence each other. It’s called a price correlation.

Check out this chart of gold with the correlation indicators on the bottom of it.

I’m running the correlation of gold and the US dollar index, the TLT bond ETF, and Bitcoin on the bottom of this chart using their 200-day moving averages. When this indicator is close to 1.00 it means the two things being measured are trading perfectly instead with one another and when it is negative 1.00 it means they are trading in complete opposition – when one goes up the other goes down.

The closer to zero the indicator is the more random the price relationship is between the two things being measured, meaning there is no relationship. In March we saw wild volatility in the markets that caused just about everything to go down so you have to look at the correlations now, which have returned to normal for them.

Gold has a negative 0.75 relationship with the US dollar, which is what it historically has. When the dollar goes down gold tends to go up. Meanwhile, the relationship with TLT is near 0 and Bitcoin is at 0.36. That means the relationship between gold and Bitcoin is not a negative one.

Bitcoin going up therefore does not hurt gold, nor do rising bond yields as bonds fall in value really impact gold in a meaningful way.

What is influencing gold is the fact that the dollar fell so much going into New Years' that it go extremely oversold, much like it did going in August and bounced in the past few days.

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