I was reading this column yesterday, which described a number of items you may have not known about gold. That got me thinking. What can the price of gold tell us about the broader market or the economy? And I remembered a line that a trader I used to work with proclaimed. He has said a number of times and believed that the price of gold leads the broader equity market up or done. So does it? I thought I would test this theory and see if it works.
Cutting to the case, it doesn't. That is at least as far as I can tell. I ran a few different scenarios to try discern this, but I think the below two graphs tell the story. The first is the 6-month return of the S&P 500 and the gold since January 2000.
6-Month Rolling Daily Return
1-Year Rolling Daily Return
Just looking at the daily returns it appears there is little to no relationship between the two data sets. However, looks can be deceiving and I thought I would run some statistics. Well, the statistics are no better. The correlation between the two sets show little to no relationship, as the 6-month rolling return correlation is just 13% while the 1-year return is better at 28%. Additionally, I ran lagged R-squared statistics to see if gold can provide some insight into the future performance of the S&P 500. Without going into all the R-squared stats, the best measure I calculated was just 7%.
It appears that gold prices provide little to no insight into the future path of the broader equity market.
Cutting to the case, it doesn't. That is at least as far as I can tell. I ran a few different scenarios to try discern this, but I think the below two graphs tell the story. The first is the 6-month return of the S&P 500 and the gold since January 2000.
6-Month Rolling Daily Return
1-Year Rolling Daily Return
Just looking at the daily returns it appears there is little to no relationship between the two data sets. However, looks can be deceiving and I thought I would run some statistics. Well, the statistics are no better. The correlation between the two sets show little to no relationship, as the 6-month rolling return correlation is just 13% while the 1-year return is better at 28%. Additionally, I ran lagged R-squared statistics to see if gold can provide some insight into the future performance of the S&P 500. Without going into all the R-squared stats, the best measure I calculated was just 7%.
It appears that gold prices provide little to no insight into the future path of the broader equity market.
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