Gold has been exhibiting some extreme correlations over the past three months. And by extreme, we mean the most negatively correlated it has been to stocks, bonds and oil prices in decades (or ever in some cases). Let’s take a look at some charts.
Since 1974, the 65-day rolling correlation between gold prices and US 10-year yields has averaged exactly 0%, i.e. there usually isn’t any relationship between the two. However, over the past 65-days the correlation has moved to more than -60%. The only other time this correlation has been this negative was in October 2001.
ValueWalk's Raul Panganiban interviews Joseph Cioffi, Author of Credit Chronometer and Partner at Davis + Gilbert where he is Chair of the Insolvency, Creditor’s Rights & Financial Products Practice Group. In the interview, we discuss the findings of the 3rd Annual report. Q2 2021 hedge fund letters, conferences and more The following is a computer Read More
Moving to equities, since 1984 the equity-gold correlation has only surpassed -50% a handful of times (1987, 1990, 1993, 2001, 2002, 2003, and 2008). The latest reading of the 65-day correlation is -58% and as only been surpassed once (2003).
The correlation between the VIX and gold is at an extreme as well but this time on the positive end of the spectrum. The 65-day correlation currently stands at 53%. Frighteningly, since 1990 (when the VIX series begins) the only other times this correlation was so tight was when the US was in the middle of a recession (1991, 2001, 2008).
Lastly, two commodities that usually have a slight positive correlation now have the most negative correlation since 1980. The average 65-day correlation between oil prices and gold prices is just 15%. However, the latest reading is -35%. Which, as you can see in the chart blow, is the most extreme negative reading since 1980.
As a bonus, check out the current 65-day correlation between stocks and bonds. We have talked before on this blog about how the correlation between equity prices and oil prices has increased. Now, equity prices and bond yields are again moving more in tandem. At the beginning of the year, the 65-day correlation was just 25%. It has since shot up to 59%, a level we were regularly at from 2011-2012, but is still relatively high from a historical standpoint.