The Correlation Between The Gold Price and Bitcoins

We recently noticed in an analysis that gold and bitcoin prices were highly correlated (now at +0.80), and were curious to see how we could take this a step further.

To begin, we have a limited set of variables, so we must make our own.  Something I thought interesting to look at the vector of price changes of gold and bitcoin: the direction and magnitude.  However it goes one step forward and we examine the correlation of these newly created variables.  This could provide us with further insight into the bitcoin-gold relationship.

Defintions

Let’s start with defining what our output will mean:

  • Percent change: Describes what direction and the magnitude of each asset’s price change over time.
  • Correlation: Describes how the two asset classes are moving, together or in opposite directions, and by what magnitude.  This is denoted by either a positive, negative, or zero value

bitcoin_gold_2014

We chose to look at data from after March 2014 considering that information from before this period is skewed from the massive run up and decline caused by the MtGox exchange hacking.  That period is not representative of bitcoin’s true nature.  We also note that the analyzed data was looked at with a 30-day moving period to generate the values.  Without doing this, our output look look erratic and we are more concerned with the general trend.

Our Observations

In mid-September, there seems to be a sudden change to a positive correlation. Our magnitudes of change appear to become more alike in size and direction.  There are 30 days of data calculated in generating the correlation. Therefore, the speed of this change suggests a significant shift in the that calculates the correlation value.  What does this mean? We think that it may show that gold and bitcoin have been making large price movements together. 

Possible Causes

Given the recent macroeconomic announcements and news, from the slowing global economy to the Fed’s monetary policy stance, both these assets seem to be responding in a similar fashion to exogenous variables.   It has gained more legitimacy, attention, and is being invested in by seasoned investors like hedge funds.  All this could suggest that bitcoin is maturing into a commodity asset, like gold.

 

Written by one of our newest contributors, Michael Mansour from DigitalTangible which is is a brand new marketplace where users can list their gold bullion confidently and buyers, anywhere in the world, can find premium gold deals at lower prices for immediate purchase and delivery.  As of today, DigitalTangible is offering silver bullion and coins on their platform.  They allow rapid purchase and liquidation on their Peer-to-Peer marketplace and their cryptocurrency based partner exchange, so customers can change their position in under 24 hours with bitcoin. DigitalTangible offers these precious metals through its network of partner dealers that include Amagi Metals and Agora Commodities, and accepts payment in cash or bitcoin.

Receive these articles per e-mail

Subscribe for the free weekly newsletter and receive 3 papers about physical precious metals investing