The US Stock Market, The Euro and Gold

It's time to revisit the correlation between the US stock market and the Euro or Gold.

This chart shows the SP500 index (black) and the same index priced in Euros (red), or, to be more precise, priced in Euro future contracts. The first phase of the global carry trade, causing a strong positive correlation of the SP500 and the Euro, and therefore causing the SP500 in Euros moving in a very tight range, took about two years , from the Spring of 2003 to the Spring of 2005. A rebalancing of this trade occurred afterward, as the US Dollar bounced back from the two-year fall with respect to other currencies, causing the SP500 in Euros to move relatively quickly to a new, higher, range. A new rebalancing followed in the Fall of 2006. It appears that a new tight range is forming at a still higher level:


On the other hand, if I consider gold as the "currency" to price the US stock market, I can see very well that after a period of strong positive correlation, paralleling the one with the Euro, we have entered a phase of negative correlation. Right now, the SP500 priced in gold is almost back to where it was at the beginning of 2003, at the lowest point of the bear market:



Categories: stock market, currencies, euro, gold, correlations
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