Bitcoin, Gold, and Silver have been showing surprising signs of correlation. If the three risk-off assets continue to move in the same direction, then Bitcoin is lagging and could catch up any day.


Does Bitcoin follow Gold and Silver?

Gold, Silver and Bitcoin

Gold, Silver and Bitcoin

In some of my more recent articles, I’ve discussed how Bitcoin follows US equity markets as a risk-on asset more often than it does Gold as a risk-off asset. Additionally, I’ve pointed out that Gold has a surprising amount of correlation to equity markets during 2019. But we could be experiencing a change in the correlative moves that Bitcoin has had with equity markets. The chart above shows four charts. Gold’s chart on the top left, Silver’s chart on the top right, Bitcoin’s chart on the bottom left, and a comparison chart of all three on the bottom right. I’ve also identified some dates with vertical lines. The vertical lines represent important swing dates for some, but not all of the three instruments we will be looking at today.

Without a lot of analysis, one can eyeball the charts for Bitcoin, Gold, and Silver and see a solid correlative structure that has been maintained for over half of 2019. A look at the comparison chart of those three markets on the bottom right confirms that shared structure. There are some noticeable divergences, mostly with Bitcoin. Bitcoin attained a major 2019 swing high on June 25th, 2019, while Gold and Silver didn’t reach their major 2019 swing highs until early September. December 17th, 2018, was near the bear market and 2018 low for Bitcoin, but that for Bitcoin was also a higher swing low for Gold and a pre-breakout low for Silver. The condition that is the most dominant on all three of these charts is the existence of a long-running bullish continuation pattern known as a bull flag.

The bull flags themselves warrant some special attention. Gold’s bull flag is the most stable and structurally sound of the three flag patterns – with a slope that nearly textbook. Silver and Bitcoin, on the other hand, have very steep slopes on their bull flags, indicating violent reactions and selloffs as price has approached the upper band of the bull flag. Bitcoin most definitely has the steepest bull flag. But I want to call your attention to the comparison chart on the bottom right. Look at Gold’s (blue) line and Silver’s (orange) line and look at the most recent direction of price’s slope. It’s noticeably higher. Bitcoin’s is not – it’s showing some flattening of price action. If Bitcoin is to follow Gold and Silver’s structure, then we should anticipate Bitcoin having a very bullish response over the next few days, but we might have to wait a little longer. I do want to note that since Bitcoin has made strong correlative moves with Gold and Silver, it has also lagged both of Gold and Silver, being the last to match the swing structure. We are very close to one of the most illiquid trading periods of the year: Christmas. Be on your guard and be very diligent if you plan on trading during the holidays!