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. The cryptocurrency instead saw a revived bear market with a
convincing move below $6,000 on Nov. 14 – a day after gold found takers
around $1,200 per ounce.
That 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, with
a negative number representing 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. Currently, the safe haven
metal is trading at $1,285, having hit a three-week low of $1,276
earlier this week.
Meanwhile, 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.
It is worth noting that correlation is not causation and only describes
the relative change in one variable when there is a change in another.
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.
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.
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