Gold and Bitcoin Heading Lower Correlations Diverging
Even as stocks continue to trade lower, the traditional hedges aren’t there today.
Share this:
Gold has been moving lower over the last few sessions, even as stocks have been moving into bear territory. One would naturally think that the opposite would occur, as gold is often considered a hedge to a falling stock market. However, at some point gold and other hedging currencies, start to fall as well. Stocks are down 20% from the highs. Margin calls are being called in and people need to raise cash. One-way traders will begin to raise cash is to sell gold. On today’s cash market open at 8:20 EST, gold sold off from roughly 1640 down to 1605. It is down over 3% near 1589 as of the time of this writing. On a 240-minute chart, we can clearly see the how stocks and gold are now moving together. The correlation coefficient is now back above +.50. This indicates that more than half the time the 2 assets are moving together. We can see that before March, a majority of the time the 2 were inversely related.
Source: Tradingview, City Index
Many thought that crypto currencies would be the “digital gold” and that money would flow there as a hedge to stocks. However, BTC is down 25% TODAY, trading below 5900. The same reasoning that is applied to gold as can be applied to Bitcoin. When investors need to raise cash, they will sell other assets to meet margin calls in stocks. BTC broke through strong support today, and below the bottom trendline of the long-term symmetrical triangle. The correlation coefficient between Bitcoin and the S&P 500 is +0.90! This means the 2 assets are moving together 90% of the time!
Source: Tradingview, City Index
On extreme days like today when fear and greed rule the markets, technical don’t matter. There are three things I would add:
- TRADE SMALLER SIZE TO COMPENSATE FOR THE VOLATILITY.
- USE STOPS.
- PRESERVATION OF CAPITAL IS KEY. MAKE SURE YOUR ACCOUNT IS AROUND TOMORROW TO TRADE ANOTHER DAY!
Even as stocks continue to trade lower, the traditional hedges aren’t there today. Practice safe trading!
Gold has been moving lower over the last few sessions, even as stocks have been moving into bear territory. One would naturally think that the opposite would occur, as gold is often considered a hedge to a falling stock market. However, at some point gold and other hedging currencies, start to fall as well. Stocks are down 20% from the highs. Margin calls are being called in and people need to raise cash. One-way traders will begin to raise cash is to sell gold. On today’s cash market open at 8:20 EST, gold sold off from roughly 1640 down to 1605. It is down over 3% near 1589 as of the time of this writing. On a 240-minute chart, we can clearly see the how stocks and gold are now moving together. The correlation coefficient is now back above +.50. This indicates that more than half the time the 2 assets are moving together. We can see that before March, a majority of the time the 2 were inversely related.
Source: Tradingview, FOREX.com
Many thought that crypto currencies would be the “digital gold” and that money would flow there as a hedge to stocks. However, BTC is down 25% TODAY, trading below 5900. The same reasoning that is applied to gold as can be applied to Bitcoin. When investors need to raise cash, they will sell other assets to meet margin calls in stocks. BTC broke through strong support today, and below the bottom trendline of the long-term symmetrical triangle. The correlation coefficient between Bitcoin and the S&P 500 is +0.90! This means the 2 assets are moving together 90% of the time!
Source: Tradingview, FOREX.com
On extreme days like today when fear and greed rule the markets, technical don’t matter. There are three things I would add:
- TRADE SMALLER SIZE TO COMPENSATE FOR THE VOLATILITY.
- USE STOPS.
- PRESERVATION OF CAPITAL IS KEY. MAKE SURE YOUR ACCOUNT IS AROUND TOMORROW TO TRADE ANOTHER DAY!
Even as stocks continue to trade lower, the traditional hedges aren’t there today. Practice safe trading!
Latest market news
The complete CFD trading experience
Award-winning platforms, competitive spreads, low commissions and dedicated support.
We live and breathe the markets and are dedicated to helping traders realise their ambitions as we continue to set the industry bar.
Economic calendar
Web Trader platform
Our sophisticated web-based platform is packed with features.
Related articles
Gold outlook: XAU/USD hammered, stretched and vulnerable to a sharp rebound
Gold is getting hammered for solid fundamental reasons, but history suggests extreme four-hourly oversold conditions can produce violent countertrend rallies.
EUR/USD, USD/JPY Outlook: Oil, yields and an FX identity crisis
Crude oil is setting the tone across rates and FX, leaving EUR/USD vulnerable and USD/JPY caught between higher Treasury yields and the growing threat of intervention
AUD/USD Analysis: What's Next for the Australian Dollar After the RBA Decision?
Recent trading sessions have reflected a more neutral tone around the Australian dollar. This can be seen in AUD/USD price action, which has posted moves of roughly 0.2% over the last two sessions without establishing a clear direction. Much of this lack of momentum is linked to expectations surrounding the next policy moves from both the Reserve Bank of Australia (RBA) and the Federal Reserve.
StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation.
StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.