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Recalculated with base of 100.

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Gold! Are a new class of investors treating it like Treasuries?

The evidence: A stunningly high correlation of Gold to 20+ Year Treasuries (Symbol: TLT) from July 21 through August 16 is 0.89. Over that period, Gold is up 12.3%, while Treasuries up 11.8% (not counting today’s spasm).

Contrast this to a correlation of 0.5 over the periods July 21, 2009 – July 21, 2011 and it appears Gold and Treasuries are now behaving as one and the same, moving in lockstep fashion. Of course, Treasuries are a much broader and deeper market, and a move in Bonds represents trillions of dollars of activity, versus Gold, which is orders of magnitude smaller.

Perhaps investors who might otherwise flock to Treasuries during risk-off modes are now flocking to Gold? After all, S&P cannot downgrade a metal…

Source:
Michael A. Gayed, CFA
Chief Investment Strategist
Pension Partners, LLC

Michael A. Gayed, CFA is Chief Investment Strategist at Pension Partners, where he structures portfolios. Prior to this role, Michael served as a Portfolio Manager for a large international investment group, trading long/short investment ideas in an effort to capture excess returns. In 2007, he launched his own long/short hedge fund, using various trading strategies focused on taking advantage of stock market anomalies. Michael earned his B.S. from New York University, and is a CFA Charterholder.

Category: Commodities, Fixed Income/Interest Rates

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

24 Responses to “Gold = Treasuries”

  1. [...] Gold is trading just like Treasuries these days.  (Big Picture) [...]

  2. Nuggz says:

    Just saw some huckster on the street with a foam-board saying We Buy Gold.

    Which probably means it’s time to dump it.

    Similar to the grandma on TeeVee mailing her old dental crowns to a refiner.

  3. Greg0658 says:

    wonder what the gold gets turned into next ? Corn .. can eat it, heat with it, drive with it, get drunk on it

  4. Petey Wheatstraw says:

    Nuggz:

    is the fact that people are advertising to BUY something (as opposed to selling something), lost on you?

  5. crutcher says:

    If gold ever became a serious alternative to US debt it would trade for $5000, $10000 plus. The gold market is just too small to make it competitive with debt markets, absent crazy prices. Investment in gold is now for the exact opposite reason that one buys US debt. This correlation is going to breakdown big time.

  6. Mike C says:

    Just saw some huckster on the street with a foam-board saying We Buy Gold.

    Which probably means it’s time to dump it.

    Wow. People continue to massively misinterpret sentiment. At the ulimate top such as 1980, the hucksters will have signs saying “We SELL Gold, not We Buy Gold.

    Rosenberg says 3000 eventually, Louise has a target of 5000 by 2018. They’ve been right for years. I’ll stick with em.

    Really, we’ve just entered the phase where the public is really catching on. Hard to call it exactly, but I’d compare it to the broad stock market circa 1996-1998, maybe NASDAQ 1998. No doubt, we are in the 6th to 7 innings, but these last 2 innings should get very interesting.

    Trade of the decade will be SELL GOLD, and BUY STOCK if you can nail the timing exactly. Gold at 3000 to 5000, and stocks at 5%+ div yields.

    There was an article on seekingalpha that was a great explanation of Gold-Treasury price behavior. One is a call option on deflation, the other a call option on future inflation. We don’t know what government/central banks will do so you hedge both outcomes. What should 10-year yield be if we have ten years of ZIRP? Collect 0% for 10 years or 2% for 10 years? What should gold trade at if QE3, QE4, QEx is the ongoing policy and Fed buys all the Treasury debt. Is the endgame the monetization of debt. We simply don’t know how this all plays out the next several years.

  7. carleric says:

    All we really know is that all fiat currencies have failed over time. Buy dollars?….I dont think so.

  8. macrotrader603 says:

    Petey W. is correct…

    “Petey Wheatstraw Says:

    August 18th, 2011 at 12:27 pm
    Nuggz:

    is the fact that people are advertising to BUY something (as opposed to selling something), lost on you?”

    the trend is higher in Gold, sell it at your own expense…

  9. machinehead says:

    Gold has no yield, and Treasuries are converging to no yield either.

    Makes sense, in a depraved kind of way.

    Earning income on financial assets is so 20th century!

  10. machinehead says:

    Gold has no yield, and Treasuries are converging to no yield either.

    Makes sense, in a depraved kind of way.

    Earning income on financial assets is so 20th century!

  11. Moss says:

    The convergence makes sense since the crises is monetary in nature. The opportunity cost of owning Gold is now ZIRP for at least two more years.

    The title should probably say Treasuries = Gold (almost). Please refer to the Exeter Pyramid

  12. TheUnrepentantGunner says:

    I find this piece less than credible, and so should you.

    I mean, what are we talking about here: 20 sessions?

    Over that kind of sample size you could find alot of less than perfectly correlated assets trading at high correlations.

    If this holds true for 100 sessions or more (and we aren’t in a repeat of 2008 where lots of stuff became more tightly correlated for a few months), then I might start to become interested.

  13. Julia Chestnut says:

    It depends what risk you are trying to hedge, now doesn’t it? If you already have your income coming from a job in the U.S. economy, have stocks of U.S. companies, and own U.S. government debt — what political risks are you taking? Can you hedge those by owning the currencies or bonds of other economies that are enmeshed with that of the U.S.?

    Makes a certain sense to me, depending on what you see as the threat and how many treasuries you already have.

  14. bidrec says:

    Gold is an alternative to treasuries:

    “London, February 7, 2011 – J.P. Morgan today announced it is the only tri-party collateral manager to accept physical gold as collateral to satisfy securities lending and repo obligations with counterparties. This comes as more clients look to use gold as a hedge against inflation and to post as collateral. ”
    http://www.jpmorgan.com/tss/General/J_P_Morgan_Collateral_Management_Offers_Automated_Use_of_Gold/1297012349288

    “The firm expects to accept additional … commodities as collateral later in the year.”

  15. Pantmaker says:

    Someone recently pointed out that gold goes up AND down….not up OR down.

    pants

  16. Mike in Nola says:

    some here said Treasuries have no yield either, but the post in chief referred to 20+ year treasuries which do have a yield. My 30 yrs are about 3.4% and 10 yrs are at about 2%. The yield is one reason treasuries are appreciating.

    I guess if I’m doing the same as gold bugs, I better go buy some guns, ammo and canned food. And fortify my house against the zombie hoards.

  17. Nuggz says:

    Hi Petey,

    People buy entire collections of Elvis commemorative plates because they are “valuable”.

    Indeed.

  18. BigBlueCrab says:

    Well, being that gold is a small 136B /yr industry, Silver is what, a tenth that? That SIlver is used up, and also used heavily in industy….about an oz/ flatscreen TV. That it has been used as a store of wealth/trade, as long as humankind…That every millionaire I know owns some…D. Gartman, Soros, blah blah owns the physical metal
    or practically anyone who went through the G.D. has some or a lot. Why go on…
    Like the saying goes: It’s like teaching algebra to a pig. It frustrates you, and annoys the pig’. If you don’t have at least a few thousand in physical ‘insurance’…I just don’t know what to say.
    That is to to say if everyone in just this country alone tried to buy 10 silver rounds there would be no silver worldwide..What may happen when the rest of the World says Hmmmm?. Why am I holding these pieces of paper with Old US presidents on them? The US mint just halted sales of Gold Coins last week.
    I forget, what were you saying?…….

  19. Ridge Runner says:

    In an age dominated by fiat currencies, owning gold or silver is not an investment, it’s a form of insurance. At a time when short term rates are essentially zero (or negative in real terms), the opportunity cost of the insurance is very low.

    However, ‘Gunner’ is correct: correlations over this short a period are only mildly suggestive. The pattern would have to persist for a long time (say several years) to suggest a stable convergence of these ‘alternative’ safety vehicles in the minds of market participants.

  20. Petey Wheatstraw says:

    Nuggz Says:

    Hi Petey,

    People buy entire collections of Elvis commemorative plates because they are “valuable”.

    Indeed.
    _____________

    When was the last time you saw someone o the street ADVERTISING to buy Elvis-related crap?

    Worst. Comeback. EVER.

  21. Nuggz says:

    “When was the last time you saw someone o the street ADVERTISING to buy Elvis-related crap?

    Worst. Comeback. EVER.”

    Every day on the TeeVee. Just like grandma and her dental crowns.

    I suppose that Hugo Chavez is going to be the new guide to gold since George Soros dumped his collection.

    Funny..

  22. rexharrison says:

    Gold = psychological phenomenon

    ~~~

    BR: No doubt! Check out slides 25-32 here:
    http://www.ritholtz.com/blog/2011/07/bulls-bears-piigs/

  23. [...] Michael A. Gayed, – Chief Investment Strategist at Pension Partners – notes (via The Big Picture): Recalculated with base of [...]