Gold’s fall could be blamed on Bitcoin’s rise, analysts say

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Some market analysts claim there is a correlation between the surge in Bitcoin’s price and the decline seen in the value of gold. The two different assets have been regarded as serving the same purpose, with gold being a physical store of value and Bitcoin being a digital store of value.

GDX price for the last three months. Source: Ycharts.com

Given the rise in Bitcoin’s price, some market analysts believe that investors are choosing to store their assets in the digital version of gold, causing gold to lose some of its value.

Gold hits July low

Since September, GDX, which is an exchange-traded fund for gold miners, has lost 15% of its value whilst the price of gold has fallen to its July low point.

Larry McDonald, who oversees the US macro strategy at ACG Analytics, said that the decline in gold’s value has been accompanied by lower bond yields, which is a situation that the strategist calls unusual. He explained that every time rates have declined in the last two years, the value of gold went up, with an 82% correlation between bonds and gold prices. However, this past week the correlation dissolved and Larry thinks Bitcoin is to blame for this.

McDonald further explain that the total market capitalization of cryptocurrencies currently equates to 23% of liquid tradeable gold, rising 2-3% from 2016 and proving that cryptocurrencies are eating into gold. At the same time, whilst gold lost more than 2% of its value in the past month, Bitcoin went up more than 100% in the same timespan.

The launch of Bitcoin Futures from CBOE on Sunday, 10th December, took Bitcoin’s value close to $16,800 by Monday morning but meanwhile, gold remained near its July lows.

Philip Streible, senior market strategist at RJO Futures, says that Bitcoin Futures contracts are a key indicator for the future of gold. If these contracts collapse, gold will increase in value.

Another exchange platform, CME, will also launch Bitcoin Futures contracts on Sunday, 18th December.

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