By Brendan Conway
There are strong arguments for allocating some assets to the SPDR Gold Trust (GLD) or the iShares Gold Trust (IAU). Hedging stock-market exposure isn’t one of them.
As the Leuthold Group’s Eric Weigel notes in the
firm’s research this month, the correlation between stocks and gold is
“statistically indistinguishable from zero.” If that is the case, then
“the hedging argument for owning gold to protect against stock market
declines is, on average, not supported by the data.” Indeed, gold’s
daily returns “seem almost completely independent of stock market
returns,” he concludes.
On the other hand, gold’s negative correlation with the dollar is
robust, as is the positive correlation with changes in inflation
expectations.
So, use gold to hedge against currencies and inflation, but not stocks.
The information contained in this article does not constitute a
recommendation, solicitation, or offer by D2 Capital Management, LLC or
its affiliates to buy or sell any securities, futures, options or other
financial instruments or provide any investment advice or service. D2,
its clients, and its employees may or may not own any of the securities
(or their derivatives) mentioned in this article.
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