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September 21, 2011 at 11:37 AM
Divergence in the direction of gold futures and the S&P 500 has reached levels not seen since the Lehman Brothers collapse in 2008, a possible indication that investors are preparing for further market turbulence. Stuart Rosenthal, CEO of Factor Advisors, says the three-month correlation between gold and large U.S. stocks is now minus-0.52% and the gap seems to be widening.
One of the New York-based firm’s flagship products, which provide long-short ETFs used by investors seeking to leverage the spread between two market segments, is the FactorShares 2X Gold Bull/S&P 500 Bear ETF (NYSE:FSG), which seeks to capitalize on the historic inverse relationship been gold and large-cap stocks.
“We’ve crunched this data going back decades and a hundred-plus years,” says Rosenthal (right). “The correlation is anything but stable; so the graph moves from one extreme to another. But based on 180 years of data, the correlation [between gold and large U.S. stocks] is roughly zero. Gold is running independent of stocks.”
And this independence just got more interesting in the past three months because of the widening negative correlation, a pattern which Rosenthal says has historically “coincided with various pullbacks in the market.”
