By Alex Rosenberg
Gold and stocks don't always act like the best of friends, but as of late, they've become the worst of enemies.
In the 60 sessions through Wednesday's close, the correlation between the daily moves of gold futures and the S&P 500 has been negative 0.63. Since correlations run from 1 to -1, with 1 indicating perfect correlation, 0 indicating perfect indifference, and -1 indicating perfect opposition, this shows a very strong inverse relationship between the two assets. If all one knew about the market in a given session is that gold had risen, it would be a decent bet that the S&P fell.
As a matter of fact, -0.63 is the lowest ever correlation between gold and stocks, based on a CNBC analysis of FactSet data going back to 1984. Indeed, the average correlation over the entire 32-year period is just -0.06.
This turn lower in the bullion-S&P correlation, which was also pointed out in a recent blog post on ValueWalk, may be a consequence of ultra-low bond yields.
Gold, says Susquehanna head of derivative strategy Stacey Gilbert, is "your natural defense mechanism" against negative-yielding bonds. As ultra-low or negative yields fall, gold begins to look more attractive in comparison. Stocks, meanwhile, tend to rise along with yields, both because bonds and stocks are natural substitutes for one another, and because economic growth tends to increase both yields and stock prices.