Friday, March 12, 2010

Debunking The Risk-Appetite Explanation

Joe Wiesenthal has pointed out in the Business Insider that stocks are rallying but gold isn't, indicating that the inverse-dollar trade that used to hold is now deteriorating.
Last year, when the dollar/stocks inverse trade was on to full effect, this was the case. Gold rallied when stocks would rally. Gold would sell off on days when stocks would sell off, and the dollar would be strong.

But that's been deteriorating for awhile, and one loser has been gold. Stocks are riding an impressive streak, but the precious metal has been going nowhere fast.
He concludes by saying that the current rally is a risk rally, and gold has no real reason to rise during one of those. Risk-takers focused on equities aren't inclined to seek out safe havens when the economy recovers.

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