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 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.