Bitcoin and Gold: A Tightening Relationship Amidst Macro Stress

Bitcoin's relationship with gold has been tightening in recent months, with their correlation reaching its highest level since 2020. According to data from Adam Livingston, Bitcoin's 90-day volatility is currently around 36.2%, while gold's is at 25.3%. This makes Bitcoin just 1.43 times as volatile as gold, down from 5.6 times in 2021.

The unusual convergence between the two assets has come about due to gold becoming more volatile. Livingston notes that this is a rare occurrence, with there being only 82 days since 2020 where gold's 90-day volatility exceeded 25%. This year alone, Bitcoin's average volatility has risen to around 44% from 41%, while gold's has surged to about 30% from 18%.

The narrowing gap between the two assets' volatility has occurred alongside a stronger relationship between their returns. Bitwise notes that Bitcoin's three-month rolling correlation with gold reached its highest level since 2020 at the end of August, using Bloomberg data going back to 2015. The previous correlation peak came after the COVID crisis unleashed massive fiscal spending and monetary stimulus.

However, the latest bout of macro stress has produced a striking divergence between the two assets. Gold plunged from nearly $4,700 on Aug. 25 to as low as $4,342 on Sept. 1 as Treasury yields and Federal Reserve rate-hike expectations surged. Bitcoin, on the other hand, held around $77,000 before rebounding above $80,000.