GLD is gaining ground, diverging from its recent correlation with U.S. stocks
by Bryan Sapp 4/10/2012 3:57 PM
Article from Shaeffer's Investment Research
As of 3:00 p.m. today, equity markets were very ugly, with the major indexes down anywhere from 1.5%-2.5%. The CBOE Market Volatility Index (VIX) is up 11%, and is now above the 20 level after rising for five of the six past days. A major catalyst for today's market action is Europe and continued strength by Spanish bond yields, indicating decreased confidence among bond investors across the pond.
What's interesting is that prior to today's action, gold had been very highly correlated to U.S. equities and the euro currency for quite some time. However, near midday today, equities were tumbling lower while gold made a sharp move higher. Around the same time, between 12:00 and 1:30, the euro moved marginally higher, but has since drifted back lower. What's even more precarious about this move in gold is that multiple officials from the Fed came out today and said that no further accommodative monetary policy should take place at this time. As we have seen since the inception of the Fed's quantitative easing programs, gold would make sharp moves higher on any hint of additional QE efforts.
Could this be a signal of the beginning of a reallocation back into gold as a safe-haven trade, as opposed to the inflationary trade it has been since the inception of QE1? Time will tell, and one day's action obviously doesn't determine a trend. Looking at a chart of gold, technically, it has some work to do. The SPDR Gold Trust ETF (GLD) rests near $161, with its 200-day moving average overhead, currently near $164. A move back above this key trendline on volume could signify a noteworthy paradigm shift, and should be monitored closely for a profitable trading opportunity going forward.
Article from Shaeffer's Investment Research
