A 4-Month High Bitcoin-Gold Correlation Hints at a Bullish Market Sentiment

The correlation between Bitcoin and its traditional rival Gold reached a four-month high on July 22.
At the same time, the cryptocurrency’s correlation with the S&P 500 index plunged to its one-month low.
The readings appeared as the US 10-year Treasury real yield sank to a record low last seen in 2012.

The proximity between Bitcoin and Gold is growing as investors look for havens against an underperforming US bonds market.
A report fetched by Skew, an on-chain analysis platform, shows that Gold’s one-month realized correlation with Bitcoin spiked to its four-month peak on July 22. At 40.4 percent, the mutuality between the two assets almost recovered wholly from its April 27 bottom of minus 42.8 percent.
BTCUSD-XAUUSD Realized Correlation. Source: Skew
Bitcoin’s shift towards gold also coincided with its withdrawal from the S&P 500. The one-month realized correlation between the cryptocurrency and the S&P 500 fell to 42 percent two weeks after peaking at a record high level. It is now near its one-month low.
Bitcoin, Gold Price Behaviors
Bitcoin and Gold prices have risen sharply this week. The cryptocurrency, which was stuck below $9,300 for two consecutive weekly sessions, broke above $9,500. Meanwhile, the precious metal topped at $1,870 an ounce for the first time since September  2011.
Bitcoin-S&P 500-Gold price action in 2020. Source: TradingView.com
America’s equity indexes also fared well, trading now above their pandemic-induced March 2020 lows.
The rally in the benchmark S&P 500 appeared despite a rising number of COVID cases, as well as escalating tensions between China and the US. But the rise of Gold and Bitcoin alongside showed that risk-on investors are uncertain about a V-shaped recovery.
Economist Stephen Roach further warned that the US market could be in for a “dreaded double-dip” scenario.
“This behavioral capitulation on the demand side of the U.S. economy is going to continue to create a lot of problems for businesses, business hirings, [and] potential corporate bankruptcies in the second half of this year,” the former Morgan Stanley Asia chairman told CNBC.
The ‘TINA’ Factor
Bitcoin and gold also reached parity as the US real yields tumbled against the signs of continued Federal Reserve support.
The 10-year Treasury real yield – adjusted for inflation – fell to around minus 0.9 percent, its lowest level since 2012. It was well above the zero-mark earlier this year, but the Fed’s relentless bond purchasing programs, supported by a near-zero lending rate, crushed the bond market.
US 10-year Treasury real yield slips into negative zone. Source: Bloomberg
Lower yields on the US bonds involuntarily helped to spur bids in stocks, bitcoin, and gold markets. Economists call it the TINA factor – investors moving into riskier assets when “There Is No Alternative.”
That partially explains why Gold’s correlation with Bitcoin grew higher this week.
Meanwhile, TD Securities see the real yields declining towards minus 1.5 percent as the Fed expands its Treasury debt purchases. That further raises the possibility of Bitcoin continuing its uptrend further into the third quarter.

Publication date: 
07/23/2020 - 07:53
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