Impressive Gold Divergence - Gold Jumps Despite USD Strength
Wednesday, May 30, 2012
Today's chart of the day comes thanks to Zerohedge.com which had an excellent chart of gold against stocks and the 10-year Treasury yield. The chart shows a sharp divergence of gold prices today. This is in sharp contrast to action seen over the last few weeks where the gold, stocks, and the 10-year Treasury yield had been closely correlated. Interestingly, the day's gains came despite notable strength in the USD, with the EUR-USD breaking below the 1.24 level, its lowest read in over two years.
There are a number of unique factors in todays markets that bear pointing out. First, the yield on the benchmark 10-year Treasury is at an all time low of 1.62%. It is clear that the search for a safe-haven amid the ever rising concerns over Europe is reaching new heights. However, as Treasury yields continue to plumb new lows, the opportunity cost of owning gold also diminishes. Given projected U.S. debt and deficits, an alternative store of value such as gold becomes more attractive.
Perhaps today's sharp divergence represents the turning of the page for gold, silver, and other precious metals. Whether or not this trend will continue remains to be seen, but one thing is clear, confidence in Spain is falling day by day. With Greece elections just a few weeks away, and the threat of Spain requiring its own bailout rising, there will be sharp tests to what investors choose as "safe havens."
No doubt buyers of precious metals have their own opinion on the state of the global economy. Please comment on this article so others can hear your opinions.
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