Gold And S&P Are Converging Over Time

Moby Waller has two graphs in his article "Gold and the Markets: The Correlation Is Increasing" that show this convergence; he uses the SPDR Gold Trust (GLD) and S&P SPDRs to make his point. There was actually a '07-'08 divergence, pre-Bear-Sterns, and an '08-'09 one: post-November to March. Since then, the S&P and gold have moved in virtual lockstep qualitiatively. He concludes by saying that a more inverse correlation is more normal, and the positive correlation between the two will eventually dissipate.


The most likely scenario for that dissipation would be for the stock market to resume its uptrend, as the recovery kicks in, while gold languishes - not because of U.S. dollar strength, in and of itself, but because there would be little sign of inflation on the horizon. Recovery turning into stagflation would make the correlativity negative again, as it was in late '07 to early '08.