Gold Correlation Hits 2-Decade Record with Stocks
Friday, 8/30/2024 15:56
GOLD PRICES slipped but US stock markets rose further on Friday as softer-than-expected inflation data followed yesterday's strong GDP figures, with the correlation between the two investment assets reaching its most extreme in almost 2 decades as both finished August with new record month-end highs.
Averaging a record $2465 per Troy ounce across August, the gold price in London fixed at a fresh all-time weekend close of $2515.
That price for gold in the precious metal's global trading and storage hub also marked its 5th new month-end record of 2024 to date.
Rich-economy equities meantime neared their 6th new month-end high of the year on the MSCI World Index after US PCE data said that core inflation in the world's largest economy – excluding volatile food and energy costs – again held at the lowest since spring 2021 in July at 2.6% per year, rather than ticking higher as analysts expected.
New York's S&P500 index rose 0.5% at Friday's opening to head for yet another daily record and its 7th record monthly finish since January.
Across August as a whole, gold and US equities have moved more closely together than in any month since November 2005, showing a positive correlation of 0.927 on the r coefficient.
That figure would read +1.000 if gold in Dollars and the key US share index had moved exactly in lockstep, and it would read -1.000 if they had moved precisely opposite day-to-day.
Topping even
gold's Covid pandemic correlation with the tech-stock Nasdaq, today's strong co-movement between gold and the wider stock market comes in the top 0.5% of all rolling 21-session relationships over the past 55 years. The long-term average since January 1969 is 0.004.
When the correlation between gold and the S&P500 index has been as extreme as today or stronger, the relationship has then tended to weaken, with the r-coefficient 3 months later reading +0.021 before moving negative to read -0.171 three months after that as bullion and equities start to diverge.
"Gold is far more important as a mitigator of risk than of inflation," said a note overnight from Rhona O'Connell, head of market analysis at brokerage StoneX.
"Part of the investment activity in gold over the past few months has stemmed from the strength in equities [because] those [investors] with a gold weighting have added metal in order to maintain the balance.
"If and when the professional market goes full pelt into risk-on mode, gold's buoyancy will be deflated."
Last Friday's
Jackson Hole speech from Federal Reserve chair Jerome Powell, said strategist Nicky Shiels at Swiss bullion refining and finance group MKS Pamp, gave "a greenlight for rate-sensitive assets" such as gold, the S&P500 and US Treasury bonds "to continue on their bullish trajectory" while also "adding fuel to US Dollar bearish bets."
Gold's steep move to new all-time highs "is a reminder not to chase 'too-much-too soon' rallies," Shiels added earlier this week.
"[But] overall, dip buying mentality [between] $2400 and $2500 will prevail in the medium term" into November's US elections.
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"In the first half of the year," says a commodities report from French investment bank Natixis, "the gold market saw price discovery
largely taking place in the Chinese market. [But now] we are currently seeing
a return of Western demand and US macro factors being the main drivers behind" the fresh record highs in the gold price.
What's driving this new Western gold demand is "particularly relating to US rate cuts," Natixis says. "Our view is that this will continue to be the main driver behind the price of gold for this year and into 2025."
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