I recall that the last time gold sharply rose was back in August when the markets stirred up over the U.S. debt ceiling debacle which was followed by the S&P’s downgrade of U.S.’s credit rating. Back then gold price reached a record high of nearly $1,900 the U.S. treasuries yields also fell precipitately as the anxiety level in the markets rose, traders became risk averse, American stock markets plummeted and the demand for safe haven investments was high. Now the demand for U.S. treasuries is high, the American stock markets are falling again, but gold is also falling. Is gold still considered a safe haven investment among traders?
During November gold and 10 year U.S. treasuries seem to have a strong positive relation and as gold declined so did 10 year U.S. treasuries.
The chart above shows the change in the relation between gold and 10 year U.S. treasuries. During August when the anxiety level in the markets was high, the correlation was negative, i.e. as gold rose, the 10 year U.S. treasuries fell, so that the demand for both investments rose. But during October-November the relation turned from negative to positive. It seems as if the relation between gold and U.S. treasuries turned from being complementary investments to substitute investments.
I think that the recent raises in the gold maintenance margins requirements by CME may have been among the factors to make this shift. The last time the CME raised the margins for holding gold was back in September 24th. It could be that the last margin hike may have pushed many conservative traders to reduce their exposure to gold and thus leaving more risk takers traders.
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Lior Cohen, M.A. commodities analyst and blogger at Trading NRG