Citi has an explanation for gold’s decline during the latest sell-off.
The precious metal could be one step ahead of other asset classes — the first carriage in the risk on roller-coaster:
This might help explain the apparently inexplicable behaviour of the gold price in the
latest sell-off. Perhaps gold’s shift from a negative to a positive correlation with risk assets reflects that it is the first carriage. It has gained the most as the asset rollercoaster tipped downwards, but will also be the first to head up the other side (ie fall in price terms). Government bond yields responded logically (they fell) in last week’s risk sell-off, suggesting that they are still on the downward track. But they may be the next to rise up the other side.
This could lead to a quick turnaround for stocks, especially because the roller-coaster is moving faster than in 2008/2009. Here’s the theoretical order of recovery:
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