Bitcoin’s recent price rally has shifted to a sideways meander, possibly taking cues from gold’s drop from record highs.
The cryptocurrency is trading in the general range of $11,600–$11,900 for the fourth straight day.
Meanwhile, the precious metal is trading near $1,988 at press time – down 4.2% from the record high of $2,075 reached on Friday.
Both assets have recently developed a relatively strong positive correlation.
As such, gold’s decline may have applied the brakes to bitcoin’s rally from lows near $9,000.
Gold (above right) rallied from $1,800 to $2,075 in the three weeks to Aug. 7.
Over the same period, bitcoin rose from $9,100 to a peak of $12,118.
As a result, the one-month correlation between the two assets has strengthened to a record high of 68.9%, as noted by data source Skew.
While the growing correlation validates the”store of value” narrative surrounding bitcoin, it also makes the cryptocurrency vulnerable to sell-offs in gold.
“Gold is feeling the pull of gravity with U.S. Treasury yields showing signs of life,” Singapore-based QCP Capital said in its Telegram channel.
QCP noted that investors should keep a close eye on developments in bond yields and gold because they may have a bearing on bitcoin and ether prices.
The U.S. 10-year bond yield is hovering near 0.6% at press time, representing a 10 basis point gain from the recent low of 0.5%.
Gold, which does not provide a yield, may suffer deeper pullbacks and potentially push bitcoin lower if bond yields continue to rise.
Joel Kruger, a currency strategist at LMAX Digital, believes a potential sell-off in stock markets is a bigger risk to bitcoin’s upward trajectory than pullbacks in gold.
“A turnaround in stocks could threaten bitcoin, given risk for extended stocks to reverse and the potential to see what we saw back in March,” Kruger told CoinDesk in a Twitter conversation.
Global equities could come under pressure if the U.S. Congress remains deadlocked on additional coronavirus stimulus.