Why is Bitcoin inversely correlated with gold

Courses in comparison

The demand for gold in the third quarter of 2017 is as sluggish as it has been in eight years. Instead, the desire for Bitcoin is booming - the digital arithmetic unit (crypto currency) is cracking new highs in rows.

So is Bitcoin the new gold? Are investors moving from earthly assets to virtual ones?

Should it actually be so, the prices of gold and Bitcoin would have to move in opposite directions. If one rises, the other falls, and vice versa. The measure for this is the correlation, which measures the synchronization of returns. The scale ranges from plus 1 for perfect synchronism to minus 1 for counter-rotation.

Lo and behold: it's not true. The correlation between Bitcoin and gold is hovering around zero. This suggests that both prices move independently of each other (see graphic). In this case, the weekly returns are calculated in dollars. Each correlation value includes the previous 52 weeks. After all, the value marked a low of minus 0.46 in November 2015. That was when gold had a very weak year and bitcoin didn't.

It is interesting to note that the correlation of Bitcoin to stocks is almost mirror-inverted. This in turn suggests that investors are more likely to ask themselves the question “gold or stocks?” Than “gold or bitcoin?” And that would also be the classic stock market context: In good times you buy stocks, in bad gold. And people buy Bitcoin all the time. At least for now.