Following recent geopolitical events, the correlation between gold and bitcoin prices has once again come under scrutiny by market analysts. Here’s a full dive into the relationship and its implications.
The correlation of gold and bitcoin
After the recent war between Israel and Hamas, the price of gold saw a rapid increase. Interestingly, this change mirrored movements in the bitcoin market, emphasizing a revived correlation between the two assets. Skew, a renowned market analyst, shared his ideas on X (formerly Twitter), observing on October 11 that “the correlation has been applied quite loosely to btc periods of more than 35 days where there is a price disconnect between both markets.”
However, just a few days later on October 16, he observed a possible “recorrelation” as bitcoin followed gold’s latest rally. Today, the statement is strengthened by Skew’s latest report. cheep, “It seems that the correlation between btc and gold is still there. “Gold may lead the next big move for btc.”
In his recent perspectives Shared in Onramp’s weekly digest, bitcoin analyst Dylan LeClair emphasized the implications of the current government bond sell-off. Rising long-term financing costs directly influence the overall cost of capital, providing a valuation criterion for various assets.
More importantly, the treasury market underpins the global financial ecosystem. Its current instability could pressure asset prices and exacerbate the pre-existing debt cycle, potentially jeopardizing the US fiscal position. This precarious state is in stark contrast to the US administration’s fiscal actions, as evidenced by plans such as “WHITE HOUSE EYES $100 BILLION UKRAINE, ISRAEL AND BORDER ASKS,” suggesting a lack of fiscal restraint, according to LeClair.
Gold, real yields and the changing landscape
To further complicate matters, Bill Dudley, former president of the Federal Reserve Bank of New York, in his recent article in Bloomberg, noted the likelihood that the current quantitative tightening (QT) cycle will persist. until the end of 2025. This prolonged QT could intensify long-term policies. interest rates and risk of turbulence in treasury markets. However, if serious dysfunction were to manifest in the Treasury market, the Fed could reconsider its QT path.
Interestingly, after the Russia-Ukraine conflict and the subsequent confiscation of Russian G7 reserves, gold and real yields have shown an atypical positive correlation, defying their historical negative relationship.
In this evolving geopolitical landscape, where not even G7 sovereign debt is immune from confiscation, traditional “safe assets” are being re-evaluated. This uncertainty, combined with the not-so-safe “risk-free” yield of Treasuries, has bolstered gold’s position (and price) as a risk-off monetary asset and may push bitcoin onto a similar trajectory.
According to LeClair:
This repositioning, however, is not limited only to gold. bitcoin, with its unique advantages and growing liquidity profile, is on a similar trajectory, although still in the early stages of its monetization with a market capitalization of $500 billion.
Best btc price indicator?
Under these current conditions, the price of gold can be a leading indicator of the price of bitcoin, assuming the correlation between the two assets continues. This would imply that most investors classify bitcoin as a “safe haven” asset like gold, rather than a “risk asset.”
However, this opinion is not shared by everyone. James Butterfill, head of research at CoinShares, noted that the bitcoin market has changed its focus after fake news about the timely approval of a bitcoin ETF. He commented that investors now appear to prioritize ETF approval over macro expectations, putting less emphasis on the Fed’s actions.
Since Coin Telegraph’s tweet error about approving a bitcoin spot ETF, bitcoin prices have decoupled from December interest rate expectations; It seems that investors are now focused solely on the approval of the ETF, and not on what the FED does.
At press time, bitcoin was trading at $28,450.
Featured image from iStock, chart from TradingView.com
