By Alex Rosenberg
Gold and the stock market have never quite seen eye to eye, but recently the relationship has become one of outright antagonism. That means an investor looking to hedge against a potential market drop could do much worse than picking up some gold.
Here are the numbers: Since the beginning of the year, the 60-session correlation between the (daily changes of the) S&P 500 and gold has sunk from 0.18 to -0.49.
Since correlations run from 1 to -1, with 1 representing the correlation of an asset with itself, -1 indicating an exactly opposing relationship and 0 meaning perfect indifference, this is a huge swing that would appear to indicate a big change in how gold and stocks are interacting.
Correlations, especially those that use short time spans to measure the relationships among volatile assets, are notoriously squidgy. Yet when the 60-session correlation falls to the lowest level in at least 10 years and stays in that range, it is a decent indication that something notable is underway.
To be sure, the 10-year note is experiencing a more deeply negative correlation with the S&P; over the past 60 days, that figure is -0.63. However, gold makes a much more efficient hedge due to its greater volatility.