Is Gold Correlated to Bitcoin?

You can see from the weekly chart below that there is a degree of correlation between gold and bitcoin, but the timing of major movements in both assets is what’s interesting. They are both moving in the same direction, but at different times.

Source: TradingView

Gold broke out of its multi-year range in June 2019, while bitcoin traded sideways until August 2020, by which time gold was in a consolidation phase.

FXEmpire notes that gold’s next major bump was in February 2024, surging above $2,700/oz until it retreated to around $2,500/oz.

Now it’s bitcoin’s turn to shine. This week it broke above $90k, having spent most of 2024 in a consolidation.

History suggests bitcoin consolidates when gold surges, and vice versa.

The attraction of both assets is their protection against inflation, with bitcoin (BTC) exhibiting much greater volatility than gold. Over the last decade, however, BTC has proven a far more robust hedge against inflation.

This makes sense when we understand the dynamics of gold v BTC.

Bitcoin is capped at a total supply of 21 million, while there are 244,000 tons of gold mined over centuries, growing at the rate of 3-4% a year. That’s still well below the growth in M2 money supply in the US (a measure which includes cash, bank and money market funds) which has averaged about 7% a year, but went as high as 26.6% in the immediate aftermath of Covid.

Bitcoin’s supply cannot be increased. The USD increases at a fabulous rate so long as the printing button is controlled by reckless lawmakers. Gold – which costs an average of $1,345/oz to mine – is increasing at a more modest rate. As gold prices start hitting $3,000/oz, expect to see previously marginal and costly deposits spring back to life, with huge amounts of money poured into new exploration.

South Africa has a huge opportunity here, but no-one wants to invest in exploration in a country seen as hostile to mining investment. It takes months to get an exploration license in SA, while our neighbour Botswana will have you up and running in a couple of weeks.

South Africa, once the world’s largest producer of gold, now attracts less than 1% of global exploration spend. We now rank ninth in the world as a gold producer.

There’s an opportunity to start using all that surplus solar power we’ve erected in the last few years in bitcoin mining. Eskom should get in on the act too. Billions of dollars are being wasted as we dither.

For the bitcoin purists, the chart below is a beautiful thing to behold.

BTC price

Then there’s gold. Not too shabby either.

Gold in USD