Thursday, February 21, 2013

The Last Correlation: Gold and Treasuries

Front futures down another $6.90 at $1,571.30.

As far as I know FT Alphaville was the first place to hammer on the inverse relationship between Treasuries (specifically TIPS) and gold.

In "Capping the gold price" Ms. Iz did the virtuoso thang, in effect teaching a class on life-at-the zero-bound while updating her tumblr and doing a one-handed round-off.

I linked to it a month after she hit publish, after I did one of those slo-mo "Saaaaay..." doubletakes and noted:
"...By the way, the Alphaville article was posted five days before the recent $1715 high in Kitco spot.... 
Now even the TIPS correlation is changing. Nihil constat nisi mutatio.*
Yesterday MarketBeat pointed out that gold is becoming unglued from just about everything:

Gold Correlations Break Down as Prices Slump
 Gold’s recent tumble below $1600 an ounce has also prompted a breakdown of the precious metal’s correlation to other asset classes, including stocks.

Correlation, or the tendency of asset classes to move in unison, has fallen between gold and stocks as well as the dollar and inflation expectations, Barclays data show. Meanwhile, the precious metal’s relationship to Treasurys has strengthened. From Barclays BARC.LN -2.47%:
Gold has sidelined dollar weakness, with the correlation falling to less than 10%, having exceeded 75% in 2010 but fallen to an average of 51% over the past year. The three-month correlation with S&P 500 rests at 25%, having exceeded 60% last year. The relationship has indeed weakened as the equity market started to outperform over the past three months. Indeed, the notable strengthening in correlations has materialised between gold and US Treasuries, rising to a negative relationship of 77%.
The breakdown in correlations have occurred as gold prices have tumbled to a six-month low....MORE
Meanwhile Alphaville came back with "When choked gold responds to hedging demand (and Soros)" which included a short paragraph:
...The point we’re trying to make is that none of these hedge fund filings should ever really be taken at face value. These funds have “hedge” in their name for a reason. At best, what we see are just small parts of extremely smart trading plays, many of which specifically exploit expected market behavior patterns related to communications and disclosure. At worst they’re one part of a cleverly hedged position. To run a fully-exposed market long position would be market suicide....
Again, maybe the only time I've seen a financial journalist stress something that should be included in every write-up of a 13F filing. As I used to say when tracking what Al Gore was up to:
Long time readers know the drill when we look at Generation:
Two comments I've made in the past but have to repeat:
1) These are only the publicly traded U.S. stocks in their portfolio. Private deals, foreign stocks, cash etc. don't show up.
GIM is reputed to be running $5 Billion, these securities only total $2.36 Bil.
2) This is not a very "green" portfolio.
In other news off our Al Gore combined-feed:
SFist Lady Accuses Muni Passenger Of Being Al Gore , Staring At Her Private Parts (VIDEO) SFist "A crazy tweaker boarded the San Francisco MUNI and immediately began shouting at one of the passengers, repeatedly calling him ' Al Gore ' and accusing him ... 
*I think I've mentioned Heraclitus only twice over the years, once in 2008's "Lehman Recommends Pair Trades in Solar Stocks":
You could not step twice into the same river; for other waters are ever flowing on to you.
-Heraclitus, Fragment 41; Quoted by Plato in Cratylus
And once pointing out who's who  in ""The School of Athens": Apparently Raphael, Not Naismith, is the Father of Basketball" which also contained:
 What, at first glance, is a gathering of Greek philosophers:...
 ...Is, in actuality, the first known depiction of trash talkin' hoops one-upsmanship:
Aristotle:     "I'm gonna own you''.
Plato:            ''Yeah, check this out, biatch!''.
*Heraclitus did not speak Latin. I don't speak ancient Greek.