Friday, April 14, 2006

Gold and the S&P: Is There a Relationship?

Does the price behavior of gold affect the future behavior of the S&P 500 (SPY)? I thought you'd never ask.

I went back to November, 2004 (N = 347) with the relatively new gold ETF (GLD) and examined three-day moves in GLD vs. the next three days in SPY.

When GLD was up by more than 2% in a three-day period (N = 46), SPY was higher three days later by an average .28% (29 up, 17 down). That is stronger than the average three-day gain of .08% (198 up, 149 down) for the sample overall.

When GLD was down my more than 1.5% (N = 38), SPY was higher three days later by a surprising .53% (26 up, 12 down), much stronger than average.

Interestingly, when we get large directional moves in GLD, the next three days in SPY tend to outperform their averages. It seems as though gold speculation has not been bad for stocks, and it may even capture a general positive speculative interest among traders. The tendency for stocks to rise after falls in gold is especially worth watching.

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