Bitcoin, Gold as Speculative Warnings: How Worrisome Are Current Stock Prices?
XAU/USD
+0.09%
Add to/Remove from Watchlist
Add to Watchlist
Add Position
Position added successfully to:
Please name your holdings portfolio
Type:
BUY
SELL
Date:
Amount:
Price
Point Value:
Leverage:
1:1
1:10
1:25
1:50
1:100
1:200
1:400
1:500
1:1000
Commission:
Create New Watchlist
Create
Create a new holdings portfolio
Add
Create
+ Add another position
Close
US500
+1.12%
Add to/Remove from Watchlist
Add to Watchlist
Add Position
Position added successfully to:
Please name your holdings portfolio
Type:
BUY
SELL
Date:
Amount:
Price
Point Value:
Leverage:
1:1
1:10
1:25
1:50
1:100
1:200
1:400
1:500
1:1000
Commission:
Create New Watchlist
Create
Create a new holdings portfolio
Add
Create
+ Add another position
Close
NVDA
+7.16%
Add to/Remove from Watchlist
Add to Watchlist
Add Position
Position added successfully to:
Please name your holdings portfolio
Type:
BUY
SELL
Date:
Amount:
Price
Point Value:
Leverage:
1:1
1:10
1:25
1:50
1:100
1:200
1:400
1:500
1:1000
Commission:
Create New Watchlist
Create
Create a new holdings portfolio
Add
Create
+ Add another position
Close
Gold
-0.04%
Add to/Remove from Watchlist
Add to Watchlist
Add Position
Position added successfully to:
Please name your holdings portfolio
Type:
BUY
SELL
Date:
Amount:
Price
Point Value:
Leverage:
1:1
1:10
1:25
1:50
1:100
1:200
1:400
1:500
1:1000
Commission:
Create New Watchlist
Create
Create a new holdings portfolio
Add
Create
+ Add another position
Close
BTC/USD
+0.69%
Add to/Remove from Watchlist
Add to Watchlist
Add Position
Position added successfully to:
Please name your holdings portfolio
Type:
BUY
SELL
Date:
Amount:
Price
Point Value:
Leverage:
1:1
1:10
1:25
1:50
1:100
1:200
1:400
1:500
1:1000
Commission:
Create New Watchlist
Create
Create a new holdings portfolio
Add
Create
+ Add another position
Close
Over the last few years, digital currencies and gold have become decent barometers of speculative investor appetite. Such isn’t surprising given the evolution of the market into a following the pandemic, where retail traders have increased their speculative appetites.
Dumb Money Index vs S&P 500 Index
Dumb Less Smart Money vs S&P 500
That enthusiasm has increased sharply since last November as stocks surged in hopes that the Federal Reserve would cut interest rates. As noted by Sentiment Trader:
Sentiment Cycle Enthusiasm
That frenzy to chase the markets, driven by the psychological bias of the has permeated the entirety of the market. As noted in
Of course, it is not just a speculative frenzy in the markets for stocks, specifically anything related to but that exuberance has spilled over into gold and cryptocurrencies.
Birds Of A Feather
There are a couple of ways to measure exuberance in the assets. While sentiment measures examine the broad market, technical indicators can reflect exuberance on individual asset levels. However, before we get to our charts, we need a brief explanation of statistics, specifically, standard deviation.
As I discussed in
The idea of can be measured in several ways, but I will limit our discussion this week to Standard Deviation and measuring deviation with
is defined as:
In plain English, this means that the further away from the average that an event occurs, the more unlikely it becomes.
As shown below, out of 1000 occurrences, only three will fall outside the area of 3 standard deviations. 95.4% of the time, events will occur within two standard deviations.
Standard Deviation
A second measure of is
With those two measures, let’s look at Nvidia (NASDAQ:NVDA), the poster child of speculative momentum trading in the markets. Nvidia trades more than 3 standard deviations above its moving average, and its RSI is 81.
The last time this occurred was in July of 2023 when Nvidia consolidated and corrected prices through November.
NVDA-Daily Chart
Interestingly, gold also trades well into 3 standard deviation territory with an RSI reading of 75. Given that gold is supposed to be a or asset, it is instead getting swept up in the current market exuberance.
Gold-Daily Chart
The same is seen with digital currencies. Given the recent approval of spot, Bitcoin exchange-traded funds (ETFs), the panic bid to buy Bitcoin has pushed the price well into 3 standard deviation territory with an RSI of 73.
BTC/USD-Daily Chart
In other words, the stock market frenzy to has spread from just a handful of stocks related to artificial intelligence to gold and digital currencies.
It’s All Relative
We can see the correlation between stock market exuberance and gold and digital currency, which has risen since 2015 but accelerated following the post-pandemic, stimulus-fueled market frenzy. Since the market, gold and cryptocurrencies, or Bitcoin for our purposes, have disparate prices, we have rebased the performance to 100 in 2015.
Gold was supposed to be an inflation hedge. Yet, in 2022, gold prices fell as the market declined and inflation surged to 9%. However, as inflation has fallen and the stock market surged, so has gold.
Notably, since 2015, gold and the market have moved in a more correlated pattern, which has reduced the hedging effect of gold in portfolios. In other words, during the subsequent market decline, gold will likely track stocks lower, failing to provide its “ status for investors.
S&P 500 vs Gold
The same goes for cryptocurrencies. Bitcoin is substantially more volatile than gold and tends to ebb and flow with the overall market. As sentiment surges in the S&P 500, Bitcoin and other cryptocurrencies follow suit as speculative appetites increase.
Unfortunately, for individuals once again piling into Bitcoin to chase rising prices, if, or when, the market corrects, the decline in cryptocurrencies will likely substantially outpace the decline in market-based equities. This is particularly the case as Wall Street can now short the spot-Bitcoin ETFs, creating additional selling pressure on Bitcoin.
S&P 500 vs Bitcoin
Just for added measure, here is Bitcoin versus gold.
Gold vs Bitcoin
Not A Recommendation
There are many narratives surrounding the markets, digital currency, and gold. However, in today’s market, more than in previous years, all assets are getting swept up into the investor-feeding frenzy.
Sure, this time could be different. I am only making an observation and not an investment recommendation.
However, from a portfolio management perspective, it will likely pay to remain attentive to the correlated risk between asset classes. If some event causes a reversal in bullish exuberance, cash and bonds may be the only place to hide.
