SilverSeek.com / / Przemyslaw Radomski / April 13, 2012 – 10:07am
Tuesday marked the worst day of the year for U.S. markets. Stocks fell amid anxiety ahead of earnings season and rising bond yields for Spain and Italy, along with sharp losses for those markets.
The Dow Jones Industrial Average closed down 213.66 points, or 1.7%, resulting in a five-session losing streak. That’s the longest such run of losses since August. It was also the biggest one-day point and percentage drop for the index since Nov. 23. But Wednesday, U.S. stocks rose sharply after an extended losing run as Spanish and Italian bond yields fell.
How do these sometime seismic movements in the stock markets affect the precious metals markets? You might be familiar with our correlation analysis as this topic is discussed in our commentaries every once in a while, yet we decided to delve a bit more into that matter.
The relationship between gold and stocks is quite complex. It’s positive, negative, and even neutral – all at the same time – depending on the perspective one takes.
If you look at yearly gold and Dow charts separately it seems at first glance that they are aligned. Both moved up since April 2011 and both markets experienced painful corrections. However, taking a closer look (by plotting their prices on the same chart, for example) shows that there were times when gold and Dow moved in opposite directions. For instance, gold rallied strongly from July 2011 to late August 2011 while at the same time stocks declined significantly. A few months later – during the first 3 weeks of October – the Dow soared without analogous action in gold. We’ve also seen a decline in gold in December 2011 and stocks actually were higher at the end of December 2011 than they were at month’s beginning.
Also, in the past few days (second week of April) we saw gold moving higher along with lower stock prices.
If we take the entire previous year into account (the past 250 trading days), we see a moderately negative correlation between gold and S&P 500 (below -0.3), which means that these two asset classes moved on average in the opposite direction during this time frame.