Gold Is So Far Little Affected by Changing Crypto, Stock Prices and Economic Data

The gold price is down slightly after failing to hold onto the $1,850 an ounce level. The U.S. Dollar Index is up slightly but remains down significantly from its recent highs. Although the consumer confidence index declined to 106.4, it was much better than the sharp decline economists had expected.

Rising bond yields and steadying stock prices are also failing to have much of an impact on the gold price, which is holding up well despite these factors working against it.  

Gold versus bitcoin

Over the last several years, a common thread running through the market has been the narrative around bitcoin supposedly being "digital gold." However, these two asset classes display little to no correlation, with bitcoin sharing more similarities with stocks, particularly the Nasdaq. The increasing involvement of institutional investors could be a primary reason for bitcoin's growing correlation with the Nasdaq.

Even though gold and bitcoin are not correlated, the World Gold Council has found that investors are still making the connection between the two asset classes. In fact, a little over half of the retail investors who bought cryptocurrencies last year also invested in gold.

The World Gold Council recently reported that finding from a global study conducted by Hall Partners. It found that cryptocurrencies were one of the most popular investments last year, as 31% of respondents invested in one or more of them in the first 10 months of the year.

Crypto volatility

It's no secret that cryptocurrencies have been highly volatile over the last six months due to tightening liquidity and negative economic data. The collapse of stablecoins Luna and TerraUSD temporarily broke Tether's peg with the dollar, sending even more worries through the crypto market.

In little more than half a year, the bitcoin price has been cut in half, and the Bloomberg Galaxy Crypto Index has lost nearly two-thirds of its value. The World Gold Council noted that bitcoin had lost half of its value on five separate occasions since its inception, so this is far from the first time this size of a move has happened.

Understanding the differences between gold and crypto

Even though so many crypto investors have also bought gold, Hall Partners found that they understand the different risks and potential benefits of investing in each. They see gold's safe-haven, inflation-hedging qualities and see their gold as either a "store of value," a way to "protect against inflation," or "a safe investment that I don't have to worry about."

Very few investors held these same views of cryptocurrencies, with one-third of them seeing cryptos as "high-risk with the potential for high returns" or as "purely speculative."

The World Gold Council feels that these differing views could be why even more investors bought gold than cryptocurrencies last year. Hall Partners found that 44% of respondents invested in the yellow metal during the first 10 months of 2021, with bars and coins being among the most popular choices.

A little over half of the investors who bought cryptocurrencies last year also invested in gold. The yellow metal has been one of the best-performing assets since the beginning of last year. The World Gold Council noted that although gold hasn't made "stellar" returns over the last year and a half or so, it has worked as a store of wealth and a "safe, worry-free investment," "giving those investors who hold it more dry powder to invest elsewhere."

Technicals for gold

Gold was in a downtrend between mid-April and May 19, when it entered an uptrend. However, it's clear now that the yellow metal's positive momentum is somewhat tentative. The gold price started to pull back only days later and now appears range-bound between $1,840 and $1,850 an ounce.

The 200-day moving average sits at around $1,847 an ounce, so the gold price is hovering just below that level. At this point, $1,840 looks like a critical support level, as the price has bounced off of it a couple of times since falling back below $1,850.

Investors will be watching stock prices as they relate to gold. The S&P 500 has recovered to within 1% of where it stood at this time last year. The index is down 13% year to date but up by more than 5% over the last five days, signaling a reversal to positive momentum for stocks, which could be one reason gold's positive momentum has reversed slightly.

However, even stock prices are looking tentative, as only 11 days ago, the S&P 500 recorded its fourth-biggest drawdown since 2010. Despite the stock market's recent strength, commodities are still performing well.

The Bloomberg Commodity Spot Index is up by about seven points over the last week, demonstrating continued strength in the commodity market. The constrained supply of many commodities is likely to support their prices, even as growth softens due to weakening demand. Gold spiked on May 24 at around $1,867 but has since fallen to about $1,842 an ounce.

Related: Studies Back Up Critics’ Argument That Speculation, a.k.a. Gambling, Is Driving Crypto Prices