Gold or Go?

[wp_lightbox_prettyPhoto_image link=”http://www.economicsignature.com/wp-content/uploads/2018/02/20180219-GLD-vs-SPY.png” description=”The blue circles show that, when the stock market (SPY) tanked in the 2008 financial crisis, the price of gold (GLD) surged dramatically. The surge remained till SPY was ready to break out the previous high during 2013 – 2014 (the yellow circles in the figure). Then, GLD was dumped. This month (Feb 2018) when the stock market was experiencing a huge correction, GLD had a price drop along with SPY. It seems that the stock market hasn’t fallen enough to trigger the hedging by gold. ” source=”http://www.economicsignature.com/wp-content/uploads/2018/02/20180219-GLD-vs-SPY.png” title=”Gold or Go?”]

Gold is usually used as a hedging instrument when the stock market crashes.

Referring to the blue circles in the above figure, when the stock market (SPY) tanked in the 2008 financial crisis, the price of gold (GLD) surged dramatically. The surge remained till SPY was ready to break out the previous high during 2013 – 2014 (the yellow circles in the figure). Then, GLD was dumped.

This month (Feb 2018) when the stock market was experiencing a huge correction, GLD had a price drop along with SPY. It seems that the stock market hasn’t fallen enough to trigger the hedging by gold. However, monitoring the pair of stock market and gold can give you a hint about the market condition.

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