Since Bitcoin reached the $100,000 mark, a query has begun to bubble up within the blogosphere and financial discourse: what’s the relationship, if any, between the value of gold and Bitcoin?
I wrote code to guage the connection between gold and Bitcoin costs. Utilizing month-to-month worth adjustments from January 2014 to December 2024, I first make sure the stationary of the date. The information is then cut up into pre- (2014–2019) and post-pandemic (2020 – current) intervals for targeted evaluation. Granger causality checks are carried out to find out whether or not previous values of gold will help predict Bitcoin or vice versa. Correlation coefficients are then calculated to measure the energy and path of their relationship. A Vector Autoregression (VAR) mannequin to investigate dynamic interactions between the 2 property, with Impulse Response Features (IRFs) utilized as an example how a shock to 1 variable (e.g., Bitcoin) impacts the opposite (e.g., gold) over time, offering an in depth view of their financial interaction. The identical operations are additionally carried out on the S&P 500 and gold to supply a benchmark for comparability.
Findings Abstract
Granger Causality Exams:
Gold and Bitcoin (Pre-Pandemic): The Granger causality checks yield excessive p-values (> 0.05) for all lags, indicating no proof that gold influences Bitcoin or vice versa within the pre-pandemic interval.
Gold and Bitcoin (Submit-Pandemic): The p-values drop barely, significantly at decrease lags (0.1492, 0.129, 0.0982), suggesting a weak indication that gold may affect Bitcoin, although nonetheless not statistically important general.
Gold and S&P 500 (Pre-Pandemic): P-values are decrease for sure lags (0.0787, 0.0798, 0.1223), hinting at a modest causal relationship the place gold may present predictive indicators for the S&P 500.
Gold and S&P 500 (Submit-Pandemic): P-values stay constantly excessive (> 0.05) throughout all lags, exhibiting no important causal relationship between gold and the S&P 500 post-pandemic.
Correlation Evaluation:
Pre-Pandemic:
The correlation between gold and Bitcoin is weakly optimistic at 0.10, reflecting little connection between the 2 property.
Gold and the S&P 500 have a slight unfavorable correlation of -0.08, in line with gold’s historic position as a counterbalance to equities.
Submit-Pandemic:
Gold and Bitcoin present a near-zero correlation (-0.01), indicating their relationship has weakened additional.
Gold and the S&P 500 exhibit a stronger optimistic correlation (0.20), suggesting gold moved extra in keeping with equities throughout this era, doubtlessly as a consequence of pandemic-driven financial coverage or broader risk-on sentiment.
Impulse Response Perform (IRF) findings:
Gold and Bitcoin:
Pre-Pandemic: A shock to gold has a small and combined impact on bitcoin over time, with preliminary responses being barely unfavorable earlier than stabilizing close to zero. Conversely, a bitcoin shock ends in noticeable, short-lived fluctuations in gold costs, although the affect diminishes after a number of intervals.
Submit-Pandemic: Bitcoin turns into extra attentive to gold shocks, with sharp, important reactions noticed initially, adopted by stabilization. Gold, in flip, reacts extra prominently to shocks in bitcoin, exhibiting stronger suggestions results in comparison with the pre-pandemic interval.
Gold and S&P 500::
Pre-Pandemic: A shock to gold has a reasonable however short-term unfavorable affect on the S&P 500, in line with gold’s position as a hedge in opposition to fairness markets. Shocks to the S&P 500 barely affect gold costs, though the responses are comparatively muted.
Submit-Pandemic: Each property exhibit extra dynamic interactions. A gold shock now has a extra sustained and combined impact on the S&P 500, together with intervals of optimistic and unfavorable responses.Conversely, S&P 500 shocks have a extra noticeable affect on gold costs, highlighting an elevated hyperlink between the 2 property within the post-pandemic atmosphere.
Conclusion
With all of the caveats that usually attend econometric evaluation, the next may be mentioned. Within the pre-pandemic interval, gold and Bitcoin exhibited little to no relationship when it comes to causality or correlation, with Granger causality checks and correlation analyses exhibiting minimal interplay. In that very same time interval gold maintained a modest counterbalance position in opposition to the S&P 500, in line with its historic perform as a safe-haven asset in periods of fairness market stress.
The Impulse Response Perform (IRF) evaluation additional helps this: gold shocks had restricted and short-lived impacts on Bitcoin, whereas Bitcoin shocks induced slight, short-term fluctuations in gold. Equally, gold’s affect on the S&P 500 was modest, with a unfavorable however short-term affect that aligns with its position as a hedge.
Submit-pandemic, gold’s relationship with Bitcoin stays weak general, however the proof reveals hints of evolving dynamics. Correlation stays close to zero, however Granger causality and IRFs recommend a slight enhance in mutual affect, with Bitcoin exhibiting sharper responses to gold shocks and vice versa. In the meantime, gold’s correlation with the S&P 500 has turned reasonably optimistic, reflecting a shift in investor conduct the place gold could have tracked broader market actions throughout instances of financial uncertainty. The IRF outcomes additional spotlight this alteration: post-pandemic, shocks to gold have a extra pronounced and sustained affect on the S&P 500, and the S&P 500 in flip influences gold costs extra considerably.
Collectively, the econometric findings recommend a rising interconnectedness throughout property within the post-pandemic interval, pushed by shared macroeconomic forces and evolving investor sentiment.
