The role of gold in bubble formation in the U.S. equity market and bitcoin

Abstract

This study examines bubble dynamics in the S&P 500 Index and Bitcoin, with particular emphasis on the role of gold as a proxy for market-wide stress. We apply the GSADF bubble test, time-varying Granger causality, and multifractal detrended fluctuation analysis to both original and gold-filtered price series. The results reveal a pronounced asymmetry between equity and cryptocurrency markets. Bitcoin exhibits statistically significant and persistent bubble behavior in both raw and filtered data, accompanied by multifractal persistence consistent with self-reinforcing speculative dynamics. In contrast, the S&P 500 shows no consistent evidence of sustained bubble behavior, and its multifractal properties remain aligned with short memory and rapid information absorption. The causality analysis indicates a stable, state-dependent predictive relationship from gold to equity prices, suggesting sensitivity to global risk sentiment, while no comparable persistent linkage is observed for Bitcoin. Overall, the findings suggest that equity price dynamics remain connected to market-wide stress conditions, whereas Bitcoin’s behavior appears to be driven primarily by asset-specific speculative forces.