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Gold / Equity Correlation

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September 22, 2010 – Comments (11)

If you look at a short enough timeframe (maybe a couple of months) you can find negative or positive correlation between *ANY* two assets: Dollar/Oil, Oil/Gold, Salamanders/Twinkies, even Gold/Equities.

The more useful question is what are the long term correlations between two assets. This will let you know if they are moving together in the short term, is it a confirmation (they normally trend together), or is it a *divergence* (they normally trend oppositely)?

Over the long term Gold and Equities are usually *not* positively correlated. I tend to think that this current move of positive correlation is a divergence. Which one is lying? I think we will find out soon:



ENLARGE

11 Comments – Post Your Own

#1) On September 22, 2010 at 10:11 AM, outoffocus (23.25) wrote:

I dont even care at this point.  My accounts are going up and for that I must *pop champagne*.  Lol

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#2) On September 22, 2010 at 10:15 AM, binve (< 20) wrote:

outoffocus,

>> My accounts are going up and for that I must *pop champagne*.  Lol

Same here :). Gold, PMs, and GSMs are by far my largest holdings across my porfolios. As much as I am bearish on equities (and I am), it is *much* easier to invest in a bull market than it is to short a bear market :)..

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#3) On September 22, 2010 at 11:13 AM, silverminer (30.70) wrote:

Yup ... my 80% allocation to precious metals is bearing some delectable fruit in recent weeks.

Excellent and thought-provoking chart, binve. Hopefully readers are clear, though, on the distinction between non-correlated and inversely correlated asset pairs.

I've just returned from a most amazing trip to Scotland's Outer Hebrides. Sorry to have missed an eventful stretch of time for pms. :)

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#4) On September 22, 2010 at 11:47 AM, binve (< 20) wrote:

silverminer,

Hey Chris!

>>Excellent and thought-provoking chart, binve. Hopefully readers are clear, though, on the distinction between non-correlated and inversely correlated asset pairs.

Good point. There are some periods of non-correlation between Gold and Equities, but there are some very strong periods of negative correlation as well. It all depends on how the market is seeing Gold's role: Reflationary (2002-2007) we saw a lot of positive Gold/Equity correlation, but where Golds real price was going down (Oil was rising faster than Gold), or Real Money / Safe Haven (2007-now), Gold is rising faster than equities, and the real price of Gold is increasing (GOR is dropping). And based on the macro headwinds for earnings and equity valuations, I think we will have some serious negative correlation between Gold and equities again.

>>I've just returned from a most amazing trip to Scotland's Outer Hebrides

Awesome! I hope you had a great time!..

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#5) On September 22, 2010 at 12:30 PM, cbwang888 (25.53) wrote:

Bought more GDX Dec options yesterday when GDX was @ $54

Long ANR today $40.7

Dollar slide continues ...

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#6) On September 22, 2010 at 2:25 PM, 100ozRound (29.44) wrote:

Binve - Can you chart the correlation between Salamanders and Twinkies?  I'd like to see how they perform together historically.

 

Great post as usual!

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#7) On September 22, 2010 at 2:41 PM, binve (< 20) wrote:

cbwang888 ,

Right on man!

100ozRound,

That will be my next post :) Thanks man!..

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#8) On September 23, 2010 at 6:48 AM, GraemesPSP (99.67) wrote:

I think both have been going up recently more as a function of a weakening dollar.  I think if you were to measure the two against the euro or another currency you'd probably find no recent correlation between them.

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#9) On September 23, 2010 at 10:27 PM, kstarich (31.09) wrote:

Binve

Salamanders LOL.....how you ever came up with that?

Great chart....I saved it

 

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#10) On September 23, 2010 at 11:29 PM, kstarich (31.09) wrote:

Binve

Here's my 10 cents...and that's iflation cuz it used to be 2 cents....There is a very simular set  up in the charts that looks alot like May 6 the first week of October.  I would not be surprised if there is another flash crash around October 4-6.  This could set up another equity drop and then a big up after the electons.  Everything falls apart again late Dec. though.

With the PM's it looks like a major confrontation between the investors taking delivery and the comex delivering, that will be in Nov.  so your theory of divergence will probably happen in Dec.

We'll just have to wait and see.....it's about to get very interesting

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#11) On September 24, 2010 at 12:15 PM, binve (< 20) wrote:

kstarich ,

>>Salamanders LOL.....how you ever came up with that?

From binv's crazy brain :)

Thanks for the info! I am definitely on the lookout...

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