So for the past week or so, gold/silver and US equity markets have been moving in tandem. Traditionally, metals and equities are inversely correlated.
Someone once mentioned that the correlation has to do with inflationary/deflationary environment, but can someone elaborate on why the correlation changed?
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curious as well
This may have nothing to do with fundamentals, but the froth in the metals market was just begging for a breather. For the fundamental reason that goes with that, I think people had been discounting a QE3. Operation Twist doesn't scream money printing hence metal markets sold off. Given that they aren't huge markets and that investors are highly leveraged, a decline can quickly turn into a rout. Metals also gained greatly during QE2 at the same time as equities.
I don't know all that much about this, but could it also make a difference which moves first?
It seems like if equities drop off, there would be lower expected demand for input metals causing them to come off as well. Inversely if equities rally first on the same logic metals might rally as well. If metals move first on the other hand, equities will do the opposite as higher input metal prices lead to less corporate profits and vice versa...
Industrial demand for precious metals only accounts for a very small part of their price. Gold has driven by inflation expectations and gold 'haters' capitulating. For instance, Dylan Grice making the case for gold at $10k by considering how much of the dollar is backed by gold. Grice is an excellent analyst but that metric is useless, currencies have been debased against gold in all centuries and never has a peg truly been safe.
Silver is more or less the same play although the gold-silver ratio doesn't overwhelm the fundamental picture of industrial demand.
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