Despite skyrocketing inflation and a macroeconomic situation that is not at all reassuring, digital gold is not assimilated to its role as a safe haven asset and in 2022 was almost always decorrelated with the precious metal.
Correlation between Gold and Bitcoin
Throughout the year, the correlation between Gold and Bitcoin has fluctuated between negative 0.2 and positive 0.2 nonetheless, as the US dollar continues to rise in value, the correlation between the two assets has changed and as of today reaches its highest level in a year.
As for the interest on the most capitalized digital currency expressed in native units (taking out price effects), although it is always sensitive to high volatility, it increased by 6% in September and by more than 26% in the third quarter of this year to about 380,000 BTC.
We are now in the depths of a bearish cryptocurrency market, and trading volumes are showing this.
Satoshi’s digital currency has declined by double digits this year, dragged down by the tightening of global monetary policy.
As is well known, to protect one’s capital it is certainly critical to place part of one’s portfolio in one or more safe-haven assets, and both the precious metal and BTC seem to want to take back the scepter.
This is more important in the case of skyrocketing inflation, like this year, and the countermeasures taken by central banks still do not provide a solution.
The situation does not seem to have returned to “normalcy,” all the more so with the macro situation we are experiencing that seems far from improving despite a breath of positivity coming from the GDP side.
As for gold, the price per ounce capitulated to a six-week low breaking the $1,700 support and palladium lost ground trading 4.18% lower.
After benefiting heavily from the Russia-Ukraine conflict in the first quarter of the year, gold has lost all of its gains and is currently down 10% since the beginning of the year.
This year in both the US and the European Union, inflation has exceeded 9%, and this has turned into the most unexpected drop in the metals ever for analysts who were placing confidence in it.
An ounce of gold against the US dollar had reached $2,070 an ounce on 8 March 2022 while silver had reached its high of the year i.e. $26.46 an ounce, though silver has lost over 20% of its value from the beginning of the year to today and only now has it regained $20 an ounce.
The CBA calms inflation with interest rates.
The Central Bank of America, which considers fighting inflation to bring it back to a milder 2% as a major battle, has strengthened the dollar following systematic bullish interventions on interest rates.
“A more aggressive Fed, implying higher real interest rates and a stronger US dollar, both indicate falling gold prices.”
This is the opinion of Przemyslaw Radomski, CEO of investment advisory firm Sunshine Profits.
David Meger, director of metals trading at High Ridge Futures said.
“There is continued pressure on gold from Powell’s comments that have raised [the] expectation of a more aggressive Fed. Gold being a non-interest bearing asset will have more competition.”
As for the world of traditional currencies, a great deal of volatility since the beginning of last month has given rise to large price differences with BTC.
It is evident that the trading price of BTC, taken on the first of the month as a benchmark against several fiat currencies, is around 10%.
BTC-GBP is trading around 5% and above BTC-USD compared to 1 September.
The English and European markets are generally much less liquid than the US dollar-denominated crypto markets and present more opportunities for professional traders.
Over the past two weeks, the crypto market has remained fairly static while equity markets continue their losses in any latitude or longitude.
Germany experienced double-digit inflation for the first time since World War II, and the Bank of England temporarily began buying long-term UK bonds to cure market volatility.
Eurozone inflation reached 10% year-on-year, taking for granted an ECB rate hike of 75 basis points at the next meeting albeit in light of recent complaints made by the United Nations against the Federal Reserve and the European Central Bank in Brussels.
The US dollar (DXY) continues to be driven by real yield differentials, and its role as a pending safe haven asset in the company of gold and BTC makes it the only asset to post positive returns in both the second and third quarters.
Year over year, all exchanges are losing large amounts of capital relative to 2021, and this trend is gradually decorrelating from the behavior of BTC and the rest of the altcoins, at least that is the trend in recent weeks.