Gold and Bitcoin prices: is there a correlation?

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We often hear Bitcoin referred to as “digital gold”, but does its price really correlate with that of gold?

Gold and Bitcoin Price Analysis

In the long term, it seems not, but there are indeed periods when they follow similar trends. However, the reason may not be a true correlation, but a common cause.

The price of gold

Taking as a reference February 2020, which is the period just before the start of the pandemic, the price of gold seemed to be on the rise. Indeed, from $1,200 per ounce in October 2018, it had risen to more than $1,600 per ounce, an increase of more than 33% in fifteen months.

It should be noted that daily percentage fluctuations in the price of gold are often very small, so +33% in 15 months is not low for a risky asset like gold.

In March 2020, as global financial markets collapsed due to the onset of the pandemic, the price of gold initially fell to around $1,400, but from April it rose again to reach nearly $2,100 in August of the same year.

Thus, the onset of the pandemic sent the price of gold up 25% in just over three months after a brief initial dip.

Since then, namely from August 2020, it has never increased further, falling to $1700 in March 2021 and then rising towards $2000 in March 2022. So from August 2020 to March 2022 , it first fell slightly, then rose above. $2,000.

This behavior is not surprising, and in fact, with the exception of the sharp and rapid rise of 2020, there is nothing particularly interesting about it.

What is interesting, however, is the fact that in 2022 it fell as low as $1,600 in September, which is the same level from which all this momentum started in February 2020, but then climbed back up. above $1,900 in January of this year. .

The very fact that in 2022, as markets collapsed due to the bursting of the 2021 bubble and inflation reached record highs in decades, the price of gold fell, suggests that a small speculative bubble has also formed in its price between 2020 and 2021.

At this point, what might be even more surprising is the return to $1,900 in 2023, but perhaps this time gold is simply doing its job as the ultimate safe haven after the excesses of the past three years. .

The price of bitcoin

In contrast, the price of Bitcoin in February 2020 was not in an uptrend. It had just recovered from the losses of the previous bear market and stood at around $10,000.

With the collapse of the financial markets in March 2020, it fell to $4,000, which means it fell the same way gold had fallen, but much more.

However, the price of Bitcoin had also recovered its March losses in April 2020, but unlike gold, it did not enter an upswing.

It took until November to see it rise, first to $20,000 and then even to $25,000 in December, kicking off the last major bull run.

This bull run was marked by a first period of growth, until April 2021, followed by a decline until July of that year, and a second period of growth from late July to mid-November, followed by a slump which seems to have ended. only in November 2022.

The price of Bitcoin in January 2023 also recovered slightly, although much less than that of gold, given the very different average volatility of the two assets.

The correlation between the price of Bitcoin and that of gold

Obviously, these two dynamics do not coincide, but there have sometimes been similarities.

First, 2020 growth after the post-collapse recovery.

In fact, between the end of March and the beginning of April 2020, the Fed launched the largest monetary creation campaign it had ever done, but if that seemed to have an immediate effect on the price of gold, which did not last than five months, it did not immediately have an effect on Bitcoin.

However, seven months later, this also started to have an effect on Bitcoin’s price. In this case, the moment does not coincide, but the trends do, given the right proportion. The difference lies in the seven-month lag in the start of Bitcoin’s bull run compared to that of gold, and in the fact that the Bitcoin run, although divided into two phases, lasted twelve months and not five. .

However, in 2021 the price of gold has also fallen. In other words, the price of gold also rose at two separate times, one in 2020 and the other in 2022, although the latter should be due to the outbreak of war in Ukraine.

Even the ensuing drop might be vaguely reminiscent of Bitcoin’s price crash, which also happened in 2022, although it was much shorter and, more importantly, much smaller.

In other words, putting aside the very different amplitudes of the fluctuations of the price of gold compared to that of Bitcoin, we can say that in both cases there was an initial sharp rise, followed by a fall and a dip. a second rise similar to the first.

The three big differences are that the timing does not coincide, even if the sequence of the different trends is the same but shifted by a few months, that that of 2022 for Bitcoin was a real collapse, while for gold it does not has not been, and especially since in 2023, the price of gold has returned relatively close to the highs of 2020, while that of Bitcoin is still far from the highs of 2021.

The common cause

The two trends obviously seem unrelated, but they may have a common cause, namely the Fed’s monetary policy.

In fact, comparing with the Dollar Index, one can discern, in general, that the price of Gold and Bitcoin over the long term tend to rise when the US Dollar drops, while they suffer when investors bet on the dollar. It is probably a trivial question of liquidity and risk exposure, or simply a decrease in the opportunity cost between risk-free assets and risky assets.

It should be noted that from November the Dollar Index fell and the price of gold rose. While that of Bitcoin is not, due to the problems generated in the crypto markets by the FTX fiasco.

Who knows if this time again, like in 2020, a rise in the price of gold will pave the way for a subsequent rise in Bitcoin with a few months delay.

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