Bitcoin (BTC) traders could get cues from an apparent negative correlation that has developed between bitcoin and gold prices.
Gold picked up a strong bid at $1,196 on Nov. 13 and jumped to $1,300 on Jan. 4, possibly due to a sell-off in the weakening U.S. dollar. The greenback was down against most currencies in last two months of 2018 on growing speculation that the Federal Reserve (Fed) could decrease or pause interest rate hikes in 2019.
Bitcoin, however, did not benefit from that broad-based sell-off in the U.S. dollar. Notably, the cryptocurrency revived the bear market with a convincing move below $6,000 on Nov. 14 – a day after gold found takers around $1,200 per Oz.
The price action indicates that the two assets are inversely correlated. Validating that argument is the 90-day correlation coefficient of -0.593. The statistical measure ranges from -1 to 1. A negative number represents the inverse relationship between the two variables, while a positive number implies direct correlation.
As a result, the leading cryptocurrency by market value could be influenced by the next move in gold prices.
BTC is trading in a narrow range above $3,500 for the 13th straight day. The prolonged period of consolidation could end with a strong bullish move if the corrective pullback in gold worsens – the metal hit a three-week low of $1,276 earlier this week and is currently trading at $1,285 per Oz.
It is worth noting that “correlation is not causation”. It only describes the relative change in one variable when there is a change in the other.
Bitcoin and gold chart
As seen above, bitcoin and gold have moved in opposite directions since late November.
Gold rallied 8.33 percent in seven weeks leading up to Jan. 4. During the same time, BTC depreciated by 50 percent.
Further, gold’s repeated failure at $1,300 has established that psychological level as a stiff near-term resistance. Meanwhile, BTC has defended $3,500 since Jan. 11.
The cryptocurrency could see a strong bullish move if the pullback in the yellow metal gathers steam.
Bitcoin daily chart
On the daily chart, BTC created a “long-tailed” candle at the crucial support of $3,500, signaling bearish exhaustion. A positive follow-through, that is, a convincing move above $3,615 (Tuesday’s low) would confirm bullish bias.
- Bitcoin and gold are inversely correlated. As a result, sustained weakness in gold could bode well for BTC. On the other hand, BTC may face fresh selling pressure if gold moves past the psychological hurdle of $1,300.
- As far as technicals are concerned, the immediate bias remains bearish, as indicated by the downward sloping 10-week MA. The prospects of a break higher toward $4,000 would improve if prices close today (as per UTC) above $3,615.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Bitcoin image via CoinDesk archives; charts by Trading View
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