Gold’s Long-Term Correlation to Equities – i.e. ZERO

This week, the World Gold Council published a report stating “the long-term correlation of gold to equities remains statistically insignificant.”

I am no WGC fan, and in fact consider them an enemy of the PM industry. It is hard to believe a trade organization funded by gold miners could be so clueless for so long. However, for the past decade, they have rarely made materially bullish comments about gold, limiting most “positive communications” to the largely inconsequential jewelry business.

That said, the statement above does not involve OPINION, but cold, hard FACT. Even the WGC couldn’t screw this one up, as the numbers could not be clearer – gold has essentially ZERO correlation to equities. I have written of this topic for years, so the WGC factoid catalyzed a brief update of my views.

Since gold was re-legalized in December 1974, it has undergone two bull markets and one bear. In the below table, I listed correlations between gold and the S&P 500 during the three periods, cumulatively covering 38 years. As you can see, the overall correlation is very low, with the only statistically significant, positive correlation occurring during 1974-80.

However, many factors make 1974-80 a difficult period to analyze in this manner. For one, gold had just been freed from the London Gold Pool (1958), the gold standard (1971), and the illiquidity of being illegal to own (1974). Thus, its price was incredibly suppressed, and bound to soar, simply to return to the equilibrium level it had been denied for six decades.

Furthermore, the S&P 500 literally ended its two-year bear market – the worst percentage-wise since the Great Depression – that week, so it, too, was bound to rise irrespective of gold fundamentals. In other words, by pure coincidence, gold purchases were legalized at the bottom of the equity bear, and six years is hardly a material period to make significant judgments from anyway. That said, the 0.33 correlation is quite weak considering the circumstances, with gold dramatically outperforming stocks during a period characterized principally by surging inflation expectations.

Conversely, the 1981-99 gold bear market coincided with the greatest equity bull in U.S. history, fueled in its later stages by Greenspan’s discovery of ultra-cheap money. And stocks were not the only market MANIPULATED during this period, as in the late 1990s, Robert Rubin and Larry Summers initiated the “Strong Dollar Policy” to covertly attack gold, utilizing bullion banks like JP Morgan, unsavory miners like Barrick Gold…

BLANCHARD versus BARRICK

…and Central Banks like the Bank of International Settlements. Irrespective, the results could not be more telling, with gold having a strong negative correlation to the S&P 500.

Reg Howe was right about the Bank for International Settlements after all

Since the equity bull ended in 2000 – and the gold bull commenced – first Alan Greenspan, and subsequently Ben Bernanke, took the concept of “ultra-cheap” money to new heights. In fact, Helicopter Ben took interest rates to ZERO in 2009, where they will stay until “at least late 2014” – or perhaps “at least late 2015,” per a recent speech by Janet Yellen, current Federal Reserve Vice Chairman.

Fed May Extend Support Past 2014, Official Says

Despite the Fed’s blatant liquidity injections to prop up the stock market – and a spiritual increase in the PPT’s activities – the correlation between gold and the S&P 500 was just 0.10 over the past 12 years, i.e. NON-EXISTENT.

We all know “Cartel Taboo #1” relates to making sure gold is not viewed as the safe haven it has always been, particularly during extreme crises. It may seem like they are constantly attacking gold during such events, but in the big picture, they are generally helpless when such cataclysms occur. Which is why they go to great lengths to smash gold back down AFTERWARDS, as they did last Fall following gold’s surge to a RECORD HIGH in September.

However, the chart below eliminates such “rear guard” actions, PROVING gold is the “go to” investment during times of extreme fear. In all four cases, gold surged while stocks plummeted, something the Cartel does NOT want you to know, and has worked hard to erase from history through heightened MONEY PRINTING, MARKET MANIPULATION, and PROPAGANDA. But the numbers don’t lie, as the Cartel does.

Thus, for those pondering the ramifications of the imminent outbreak of Global Meltdown III, do not fear. All such events will do is cause further MONEY PRINTING and DEBT COLLAPSE, the most potent positive catalysts for gold.

“They” will continue to fight against “Cartel Taboo #1” with all their might, but in the end, “they” will lose!