Gold has got a negative correlation to bonds, it has got almost no correlation to equities..." Ronald Stoeferle, Erste Group Bank, AG Mr. Stoeferle is betting on gold to hit USD$2,300 per troy ounce. We agree. Keep buying gold. Today it's USD$1,526 and AUD$1,428 per ounce. His point on gold having no correlation to equities is important. As the following chart shows: http://forums.silverstackers.com/uploads/1184_gold.jpg Source: Google Finance The blue line is the U.S. S&P 500. The red line is the U.S. SPDR Gold Trust [NYSE: GLD], a gold exchange-traded fund which tracks the price of gold. Sometimes gold goes up and stocks go up. Sometimes both fall. And other times one goes up... and the other goes down. We've seen that play out in the past week of U.S. trading. Stocks have gone up, whereas gold fell then climbed. As we see it, the importance of gold is it's a better indicator of trouble than the stock market. China's bad loans to get worse Even on bad news days stocks can still go up we've seen that happen plenty of times recently. Especially on low volumes, where most sellers have already gotten out, and all that's left are the funds and those who foolishly believe markets always go up. But while gold can get beaten up, it usually doesn't take long for the fundamentals to show through. We've seen that happen this week too. Gold is up USD$50 in just a couple of days. And that tells you to keep your crash alert turned up... and your exit plan ready. Yesterday China increased interest rates by 0.25%. No big deal you may think. It's only a small increase. But think back to yesterday's Money Morning and the news that Chinese banks could have over $100 billion of bad loans on the books... a number that could get worse with higher interest rates. Bloomberg today reports: "The ruling Communist Party may delay further increases because of signs of weakness in manufacturing and export demand and to avoid attracting more speculative capital to the fastest-growing major economy." There you have it. The "ruling Communist Party" is trying to micro-manage the Chinese economy to prevent a crash. You know our opinion on that. It will fail. An economy built on debt needs more debt to keep it growing. And it doesn't matter where the debt comes from. Trouble is, the debt just isn't flowing fast enough. The drop in export demand tells you foreigners aren't buying. They've hit the ceiling when it comes to debt. The U.S. and Europeans are too busy figuring out what to do with the debt they've already lumbered themselves with. More reasons for gold And with official inflation above 5%, the Communist Party has increased rates to slow down borrowing. If those businesses have borrowed up big banking on higher foreign and domestic growth, they could be in trouble. That spells bad news for those firms... bad news for Chinese banks... and bad news for the Aussie economy, which more than ever relies on China buying resources. Add in the continued debt problems in Europe, and it gives another reason to hold gold for insurance. As we've said all along, we can't guarantee you'll make a million buying gold. And we can't even guarantee the gold price will initially go the right way when the proverbial hits the fan. But there's something we are sure about. And that's the fact gold provides a great option as a long-term insurance policy against government and central bank meddling. It always has, and as far as we're concerned, it always will. Cheers. Kris Sayce Money Morning Australia
Got any actual stats to back this up? There seems to be slight correlation just from looking at the graph.
Even just from merely an observation the residual sum of squares looks to be quite tiny, without going into details of OLS regression and the adjusted R^2. Pretty bold statement to claim no correlation and not publish the p-values, t-statistics, R^2 or anything.
You'd have to compare the real, inflation adjusted values Or you're just measuring the decline in value of the dollar which is going to affect both gold and shares.
There should be a correlation based on the money supply. Since the money supply has increased U.S asset values have to increase in price(not always value) to match the increased money supply which we all know as inflation. This is why QE1 & QE2 have caused such bull runs in the S&P 500. But just because the value of the index and its stock rise in price that does not necessarily mean they have increased in value as the increase in money supply decreases the value of the currency so purchasing power is reduced. This is essentially what the Federal reserve calls the wealth effect were they make people believe they are better off by causing markets to double and stocks to rise but not everybody looks at the strength of the dollar. Somebody posted a interesting chart on here a while back from Zerohedge showing U.S housing priced in Gold, it showed that the top of real-estate prices when priced in gold was in 2005 and if you sold then and purchased gold you would have done very well.
I would have to guess that "correlation" in this context refers more to a predictable correlation between the one and the other. i.e. when the one goes down the other goes either down or up. But this is already explained in the piece. Look mate - lets face it - if you really wanna be clever, you could find a mathematical correlation between two piss lines in the snow originating from two unconnected individuals...
Yes, wonderfully explained by: Do the writers even know what correlation means? If not, don't use the word. YKY uses strawman. YKY uses deflection. It is not very effective.
Correlation does not mean that the trends must match perfectly. There may be outliers and anomalies and even then there is a thing called partial correlation. I just don't see how he can say no correlation without a shred of proof. It's not that I don't understand what he's saying, it's that I think he's wrong. As Dwayne said, both Indexes are influenced by inflation and would share some degree of correlation. Edit: As to why I'm questioning this 'correlation' is not because I have want to have a jab at these guys, it's because understanding this is very good if you intend to hedge or trade or understanding the markets. For example, if you realize that shorting west texas crude and longing Gold was a perfect hedge it would be a waste of time to do both together (USD/crude correlated, Gold/USD inversely correlated as an example).
This link may already be up somewhere but just in case people have not found it http://www.erstegroup.com/en/Press/Press-Releases/Archive/2011/04.07.2011 Mr stoeferles latest report July 4 2011 Look for the pdf link at the bottom of the page - the best document on gold I have ever read!
