Subscribe for 12 months with recurring billing - $199

Buy 12 months of subscription time - $199

 

Search Uranium Stocks
Uranium Price
Our RSS Feed

Uranium Updates

Enter your email address:

Follow Us on Twitter
« More Gains for SK OptionTrader Subscribers | Main | Clearing Houses Are The Mechanism Of All Markets »
Sunday
Dec042011

Does Gold’s Correlation with Stocks Mean that it’s No Longer a Safe Haven?

In this article we examine the current and past relationship between gold and the S&P 500 index and whether or not gold still remains a “safe haven”. In the past gold has often had a low positive relationship with the S&P, with that relationship trending negative in times of economic turbulence (hence gold’s safe haven status) but that trend has not held over the past 10 weeks. We aim to answer the implications this has for gold in the future.

The stock market (by definition) slows and offers low or negative returns in times of economic strife. The modern day response from central banks is to pump (print) money into the economy in a bid to fuel growth or as is the current situation - delay the significant part of the hangover.

The extremely loose monetary policy which central banks world over are adopting is keeping interest rates low. Real interest rates are currently extremely low or negative (which is observed in the US TIPS market) and this is extremely bullish for gold. For new readers, we have covered these dynamics in past articles.

In the current circumstances, some policy actions are bullish for both gold and the stock market. The U.S. economy is faltering and there are no signs of improvement. The Fed’s response is to operate incredibly loose monetary policy to stimulate growth and reduce unemployment. Monetary easing raises the value of gold through devaluation in the USD amongst other reasons.

The desired outcome of loose monetary policy is a boost for the economy as a whole. The equities market is the timeliest and one of the more accurate gauges for the state of the economy. Lower interest rates and an increased money supply (monetary easing) boost the stock market – an elementary economic concept.

What we can deduce is that monetary easing is bullish for gold and the S&P 500. In times of economic strife, the two are likely to be more highly correlated.

 


To read the full article, please click here.

PrintView Printer Friendly Version

EmailEmail Article to Friend

Reader Comments (1)

very interesting article but it would have been useful to see how gold stocks fitted into this correlation and not just the metal

December 6, 2011 | Unregistered Commenteruranium bug

PostPost a New Comment

Enter your information below to add a new comment.
Author Email (optional):
Author URL (optional):
Post:
 
Some HTML allowed: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <code> <em> <i> <strike> <strong>