I analyze macroeconomic issues from a fundamental perspective, and I analyze market behavior from a technical perspective. Original macroeconomic analysis can be found here and both macro analysis and commentary can be found on my Caps blog. If you like or appreciate my analysis, please add yourself to my Following List

Wednesday, September 22, 2010

Gold / Equity Correlation

If you look at a short enough timeframe (maybe a couple of months) you can find negative or positive correlation between *ANY* two assets: Dollar/Oil, Oil/Gold, Salamanders/Twinkies, even Gold/Equities.

The more useful question is what are the long term correlations between two assets. This will let you know if they are moving together in the short term, is it a confirmation (they normally trend together), or is it a *divergence* (they normally trend oppositely)?

Over the long term Gold and Equities are usually *not* positively correlated. I tend to think that this current move of positive correlation is a divergence. Which one is lying? I think we will find out soon:

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