Friday, February 3, 2012

Gold returning to its roots today

Today gold is behaving in a more traditional fashion, moving in the opposite direction from copper. With copper viewed as a "risk" asset and gold a "defensive" asset, the two should generally trade with a negative correlation.

Gold and copper futures (Source: Bloomberg)

This is quite a contrast to the recent price action, with gold trading more like an industrial metal, driving gold-to-copper correlation to its highs.

120 day gold - copper correlation
It's not at all clear if today's action indicates the beginning of a reversal in this trend. The decoupling of the two metals should make gold more attractive again as a "safe haven" investment, providing a real hedge to a risk portfolio (of equities and commodities).
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