Bitcoin's Correlation To Gold Is Rising: What It Means

Data shows the relationship between Bitcoin and Gold has been growing deeper recently as their 60-day correlation has been riding an uptrend.

Bitcoin Has Been Becoming Increasingly Correlated To Gold Recently

In a new post on X, Kaiko has discussed about the latest trend taking place in the correlation for Bitcoin and Gold. The “correlation” here refers to a metric that keeps track of how closely tied the prices of any two given assets are.

When the value of this indicator is positive, it means that one asset is responding to the price movements of the other by moving in the same direction as it. The closer the value gets to 1, the stronger is this correlation between the two prices.

Negative values of the metric also suggest that there exists some sort of relationship between the two assets, but in this case, the correlation is a negative one. This implies that the assets react to movements in each other by moving in the opposite directions.

Just like the 1 mark served as the extreme for the positive correlation, -1 corresponds to the point where negative correlation becomes the strongest. Naturally, when the metric is exactly between these two extremities, that is, the zero mark, it suggests that no correlation whatsoever exists between the assets.

In statistics, the two variables are called to be “independent” of each other when this condition develops. Independent variables are unaffected by changes in each other.

Now, here is a chart that shows the trend in the 60-day correlation between Bitcoin and Gold over the last few years:

The value of the indicator appears to have been heading up over the last few months | Source: Kaiko on X

As displayed in the above graph, the 60-day Bitcoin correlation to Gold had plunged to the negative territory to end the year 2023 as the two had been showing slight movements in the opposite directions.

In the last few months, though, the indicator’s value has seen a rise and there now exists a positive relationship between the two assets. At present, this correlation is still relatively low, as the metric’s value is less than 0.2.

Back in 2022, the indicator had witnessed a high of nearly 0.5. Clearly, despite the recent trend of increase, the metric’s value is still quite the distance away from this mark.

Generally, the correlation is something to look out for whenever an investor is trying to decide whether to add an asset to their portfolio. Highly correlated assets make for poor diversification options, as they are only going to mimic the performance of another asset.

Given that Bitcoin and Gold still have the metric at relatively low levels, investors of one of the assets may find it beneficial to add the other to their portfolio.