Gold, silver, and Bitcoin (BTC) prices rebound together as several macro factors determine alternative assets. When gold rose to a new all-time high of $ 2,055, BTC rose to $ 11,715 that day, up 4.28%.
Gold USD. Monthly chart Source: TradingView.com: TradingView.com
Since the three assets combined are more dynamic, there are three factors to consider. These are: the correlation of gold with bitcoin, the impact of the decline in the US dollar on alternative assets, and the increase in liquidity due to aggressive central banks’ monetary policies.
Bitcoin’s growing correlation with gold
There was no clear correlation between Bitcoin and gold prior to February 2020, but after Bitcoin’s massive price correction to $ 3,750 on March 12, there were signs of a higher correlation between the two.
Increasing correlation between Bitcoin and gold. Source: Skew
Whether the timing of this growing correlation is simply due to investors re-entering the market after the Black Thursday crash remains uncertain, but it can be argued that all asset classes, including stocks, precious metals and cryptocurrencies, fell in mid-March.
Another way to analyze the data could be The fall of the US dollar and rising inflation raised investor sentiment for gold. As safe haven assets benefited from macro factors, Bitcoin also rebounded as more investors began to view it as a store of value.
The fall of the dollar is a positive catalyst for any asset
With gold, silver and Bitcoin all rallying since April, the US dollar has lagged significantly against other reserve currencies.
The depreciation of the US dollar has had a positive impact on precious metals and Bitcoin in recent months. Some analysts, including Bitcoin researcher Mark Wilcox, said BTC’s rally was due to the dwindling dollar rather than increasing the price of BTC.
Since April 1, silver has also rebounded 90% against the dollar, outperforming both Bitcoin and gold over the same period. BTC has since increased 85% and gold 30%.
BTC-USD daily chart. Source: TradingView.com
In July, The US dollar had its worst month in more than a decade and, as Cointelegraph reported, the dollar is now at risk of falling below an important 12-year trend line.
The rising number of coronavirus cases and double digit unemployment appear to be starting a downward trend in the US economy and the dollar.
So in the short term, analysts believe the depression will continue, and in theory this would benefit gold, silver and bitcoin.
The central bank’s liquidity is growing
After the Federal Reserve decided to keep the Fed rate near zero, other central banks followed suit.
China said it would ease its monetary policy, a strategy it has historically avoided for long-term stability. In the meantime, the Thai central bank decided to keep its record interest rate unchanged until the economy recovers gradually.
Flexible financial conditions, growing liquidity in the markets and rising inflation are fueling the demand for safe assets. There is more capital in the market than before and a stronger value proposition for robust stores of value.
The current macro landscape combined with the dynamics of gold, silver and Bitcoin could further fuel demand for precious metals and cryptocurrencies.