Gold From a Correlation Point Of View

Near term record high negative correlations between equities and gold. Looks like 2008 all over again.

If one looks closely at the data though, in 2008 the negative correlations peaked approximately a month before the Lehman event. On August 15th, 2008, the prior 50 trading day correlation hit -.59. At this point the S&P was still at approximately the 1200 area (before then plummeting to the 600s). When things really started to unravel, gold lost its magic touch as an effective hedge.

Swiss Devaluation Points To Similar Move For Yen

Per the SNB press release:

"With immediate effect, it will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities."

One can only wonder how fast a rate the Swiss National Bank will be accumulating foreign currencies with such a regime. Regardless, this points to signal the BOJ that such central bank policy is acceptable. I'd expect a similar move from the BOJ soon (should USDJPY of 85 be the target?). The immediate market reaction included a selloff in gold (now being bought back up). That reveals a bit concerning correlation traders' positioning (long CHF, long gold being the inverse hedge). Despite this, logically this is still a very supportive environment for gold. Fundamentally, a meaningful resolution (or capitulative conclusion) of the EU credit crisis will be likely the only near term threat to gold's ascent. Similarly, equity shorts unwound, but are now again falling. A Swiss Franc floor doesn't solve EU strife.

Gold indexed to 1913 CPI-indexed dollars

Not so cheap. Gold's purchasing power is at all time highs for everyone currently alive.