Data shows that the relationship between Bitcoin and gold has deepened recently, as their 60-day correlation follows an upward trend.
Bitcoin has become increasingly correlated to gold recently
In a new job on X, Kaiko discussed the latest correlation trend for Bitcoin and Gold. THE “correlation” here refers to a metric that tracks how closely the prices of two given assets are related.
When the value of this indicator is positive, it means that one asset responds to the price movements of the other by moving in the same direction as it. The closer the value is to 1, the stronger this correlation between the two prices.
Negative values of the metric also suggest that there is some sort of relationship between the two assets, but in this case the correlation is negative. This involves assets reacting to each other’s movements by moving in opposite directions.
Just as a score of 1 served as the extreme for positive correlation, -1 corresponds to the point where negative correlation becomes strongest. Naturally, when the measurement is exactly between these two extremes, i.e. zero, this suggests that there is no correlation between the assets.
In statistics, the two variables are said to be “independent” of each other when this condition develops. The independent variables are not affected by changes in each other.
Now here is a chart that shows the 60-day correlation trend between Bitcoin and Gold over the past few years:
The value of the indicator appears to have been heading up over the last few months | Source: Kaiko on X
As seen in the chart above, the 60-day Bitcoin correlation with gold dipped into negative territory to end 2023 as both showed slight movements in opposite directions.
However, in recent months the value of the indicator has increased and there is now a positive relationship between the two assets. Currently, this correlation is still relatively weak, since the measurement value is less than 0.2.
By 2022, the indicator had reached a peak of almost 0.5. Clearly, despite the recent upward trend, the metric value is still quite far from this mark.
Generally, correlation is something to watch out for whenever an investor is trying to decide whether or not to add an asset to their portfolio. Highly correlated assets create poverty diversification optionsbecause they will only imitate the performance of another asset.
Since Bitcoin and Gold still have indicators at relatively low levels, investors in either asset might find it beneficial to add the other to their portfolio.
BTC Price
At the time of writing, Bitcoin is trading around $68,700, up almost 2% in the last 24 hours.
Looks like the price of the coin has been moving sideways over the last few days | Source: BTCUSD on TradingView
Featured image of Dall-E, Kaiko.com, chart from TradingView.com
