Volatility Points to Parity Between Gold, Bitcoin - Bloomberg Intelligence
(Kitco News) - The gold market has regained the critical psychological level of $1,200 an ounce as bitcoin continues to struggle to find momentum above $6,000 per token, and one market strategist said that it’s only a matter of time the markets hit parity again.
In a report Wednesday, Mike McGlone, market strategist at Bloomberg Intelligence, said that it has been nearly 1.5 years since bitcoin and gold were on equal footing and it won’t take much to close the gap. He added that market volatility is the important indictor investors need to watch.
“Bitcoin is down to about 5x the price of gold after stretching toward 15x. There's little to prevent another four-turn reduction to get it back toward 1-to-1, in our view, with declining volatility a key indicator of more mean reversion in bitcoin,” he said.
Looking at the digital currency, McGlone said that he sees market volatility dipping below levels seen in 2016 as prices stabilize.
“The maturing market, increasing participation and advent of regulated leveraged instruments such as futures are volatility suppressants,” he said. “Speculative excess, higher prices and volatility are bitcoin companions that need to be reduced to be a proper median of exchange or store of value.”
On the flip side, McGlone noted that the gold market is already seeing extreme low volatility and the market is primed to reverse course. In his report he reiterated that the yellow metal’s 90-day volatility is at its lowest level since 1999, at the same time its 60-day volatility is at its lowest level since 1997.
He added that the last time volatility was this low, the market saw a three-week rally of 34%.
“A similar pop now would put gold near $1,600 next month,’ he said. “Mean reversion in volatility typically occurs with the opposite conditions. Typically, only a minor spark is needed for reversion to occur.”
McGlone added that extreme speculative bearish positioning in the market could add more fuel, making a short-squeeze rally more sustainable over the long term.
McGlone’s comments as gold has managed to put to a one-week high as prices hold important support above $1,200 again. Comex December gold futures last traded at $1,201.50 an ounce, up 0.13% on the day.