Will Bitcoin Follow Gold?

Head of Treasury, Ang Kok Wee

Past Week’s Performance Dashboard

Tentative Markets

As Q4 rolls on, market sentiments seem to be at a crossroads, unsure of the next direction.

Last Friday’s Non-Farm Payroll (NFP) reported an increased blowout figure of 336,000 jobs, doubling its forecast.

Yesterday the International Monetary Fund (IMF) reiterated global growth rate at 3% this year. It maintained China’s at 5%, lowered Europe’s and hikes US growth forecasts (in line with Fed’s September Quarterly Economic forecast).

The Israel-Palestine conflict, which flared up over the weekend, shocked the world. However, it appears to have only a minor impact on global risk markets. This suggests that investors believe the conflict to be a localized geopolitical event, unlike the ongoing war in Ukraine. However, if this escalates and involves major characters such as Iran or Saudi Arabia, it will be difficult to ignore the wider implications for global markets.

Still, none of the above impacted the markets in a significant way.

Meanwhile, the market turns its attention to US Q3 corporate earnings. Big banks traditionally are first out of the gates to kick off each reporting season. JP Morgan and Citigroup both report on Friday (Oct 13). Banks are particularly sensitive to interest rates and the overall economic outlook, so their earnings calls may provide insights into how higher long bond yields may impact corporate earnings projections.

Indeed, it is precisely the steepening of the yield curve at the back end (longer dated bonds) that has caught the Fed’s attention. Some Fed speak suggests that itself could be considered the equivalent of a 25 basis-point rate hike! Fed Vice Chair Philip Jefferson comments on Monday (October 9) also alluded to dovish language, noting the Fed was in a “sensitive period managing risks to balance between not tightening enough and being too restrictive in policy”. That was perhaps the biggest push for risk-on sentiments, for now.

Potential Market Catalyst This Week

Oct 12 (Thursday)

•          SGT 0200 hrs: US September FOMC Meeting Minutes

•          SGT 2030 hrs: US Consumer Price Index (CPI) – forecast. 3.6% YoY

Oct 13 (Friday)

•          SGT 2200 hrs: Prelim University of Michigan (UoM) Consumer Sentiment – forecast. 67.2

The Federal Open Market Committee (FOMC) Minutes for September will be released early Thursday morning, and market participants will be eager to find any clues about the Fed’s future monetary policy decisions. However, given that the Fed already released its Quarterly Economic Projections in September, there may not be much new information to learn from the Minutes.

On Thursday evening, the market will focus on September’s CPI print, which could continue to suggest that inflation remained sticky in Q3 (Fig. 1). The Fed remains focused on fighting inflation and uses key metrics like CPI to guide its monetary policy. However, CME’s Fed Watch suggests most market participants (75%) expect no more rate hikes for the rest of the year.

Given that the Nasdaq (and risk assets) have been particularly sensitive to US yields over the past year, an unanticipated higher inflation data could therefore lead to an increase in market volatility.

Fig 1 US CPI YoY Trending Higher in Q3 2023 Source ForexFactorycom

The University of Michigan Consumer Sentiment Index, a closely watched leading indicator of economic activity, will be released on Friday. This index provides insights into consumer spending patterns and overall economic confidence.

The Consumer Sentiment Index has been declining in recent months (Fig. 2), suggesting that consumers are becoming more cautious about spending. Indeed, a recent Morgan Stanley consumer survey reveals that more than half of US consumers expect the economy to get worse in the next six months, while less than 25% expect to get better. This could have negative implications for the economy, as consumer spending is a major driver of economic growth.

Fig 2 University of Michigan UoM Consumer Sentiment Source ForexFactorycom


Bitcoin has continued to consolidate within a tight range of USD 27,200 – 28,200 in the past week. It did not trade close to the previous week’s high of USD 28,550, and currently remains under its 200-day moving average level, which remains the immediate key resistance level. Technical ranges for Bitcoin and Ethereum remain unchanged (Fig. 3):

Fig 3 Bitcoin and Ethereum Support Resistance Levels Oct 11 2023

Similarly, Bitcoin’s implied volatility for the past week has been muted (Fig. 4).

Fig 4 Bitcoin At the Money Forward ATMF Implied Volatility by Tenure

Bitcoin vs Gold

We highlighted the inverse correlation that has developed between Bitcoin and Gold in the past month, when Gold experienced a 7% selloff since September’s FOMC while Bitcoin has recovered from its own sell off (albeit on a smaller scale) and gained some more since then.

With the Israel-Palestine conflict developing over the weekend however, Gold has experienced a resurgence and rebounded 3% due to “flight to quality”. Meanwhile, Bitcoin price hardly budged (Fig.5).

Fig 5 BTC vs Gold and Rolling 30 day Correlation Source TradingView

Two observations that could be made:

  1. Recent interest rate narratives have had a greater impact on the price of Gold than Bitcoin. This may be because Bitcoin has been experiencing lower levels of leverage (fewer buyers and sellers), thereby insulating it somewhat from deleveraging effect of the interest rates on risk assets.
  2. Bitcoin and Gold have a long-term correlation of approximately 0.5, it means that they tend to move in the same direction. However, they are currently extremely decorrelated (30-day correlation of -0.75). This decorrelation may be temporary, and it is possible that Bitcoin’s price will start to move higher in line with Gold prices, especially if the Middle East crisis were to escalate.           

Good luck and stay safe wherever you are!

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