Wednesday , 6 December 2023

Do Recent Gold & Silver Correlation/Return Comparisons With S&P 500 Refute Their Safe Haven Status?

So says Jared Cummans ( in edited excerpts from his original article*.

Lorimer Wilson, editor of (Your Key to Making Money!) and (A site for sore eyes and inquisitive minds) has further edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Cummans goes on to say, in part:

Comparing Gold/Silver Correlations With the S&P 500

In recent weeks, markets have swayed violently back and forth in response to the European debt crisis…resulting in relatively high correlation to broad equity markets. Typically, investors opt for exposure to precious metals given their historically uncorrelated returns [see table below], as they typically gain when equities falter, but recently this has not been the case. Beginning September 23rd, the SPDR Gold Trust (GLD) has featured a 0.77 correlation to SPY. Over that same period the iShares Silver Trust (SLV) has a correlation of 0.86 to SPY. These figures should cause investors’ stomach to turn, as their precious metals exposure has been behaving like just another equity investment.

Why spend time surfing the internet looking for informative and well-written articles on the health of the economies of the U.S., Canada and Europe; the development and implications of the world’s financial crisis and the various investment opportunities that present themselves related to commodities (gold and silver in particular) and the stock market when we do it for you. We assess hundreds of articles every day, identify the best and then post edited excerpts of them to provide you with a fast and easy read.

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For the average portfolio:

  • a correlation above 0.75 is considered high and implies that the assets are behaving in a nearly identical manner
  • 0.2 is moderate diversification,
  • -0.2 is good diversification, and
  • anything better than -0.7 is considered excellent diversification.

As noted in the table below, both the GLD and SLV ETFs have featured strong correlation to SPY [the S&P 500 index] in ’08, ’09, ’10, and the past few weeks. Despite 2011 YTD correlations being the best in several years, this recent trend may give investors reasons to re-consider their allocations.

Correlation 2007 2008 2009 2010 YTD *Recent
GLD v SPY 0.37 0.65 0.78 0.57 -0.36 0.77
SLV v SPY 0.14 0.84 0.84 0.77 0.07 0.86
*9/23/2011 – 11/10/2011


Comparing Gold/Silver and S&P 500 Returns

While keeping an uncorrelated portfolio is certainly important, correlation should always be taken with a grain of salt. Anyone familiar with these precious metals over the past few years is fully aware that they have been steadily outpacing the S&P 500 [in percentage returns. It begs the question as to] how two assets with a high correlation can have such different returns? The difference comes from the downside risks that each feature. Simply put, precious metals have a much lower downside risk than equities, allowing them to hold their ground. For example, if SPY drops 5% in a day and GLD drops 1%, the correlation between the two assets would still be relatively high, but the returns turn out vastly different.

Ticker 2007 2008 2009 2010 YTD *Recent
GLD 30.56% 4.96% 23.99% 29.27% 20.63% 7.10%
SLV 14.25% -23.39% 47.29% 82.14% 10.80% 10.54%
SPY 5.12% -36.70% 26.31% 15.o2% 1.18% 9.49%
*9/23/2011 – 11/10/2011


As demonstrated above, the returns of these three assets are astronomically different, despite their fairly high correlation to one another. Note that silver prices tend to be volatile over the long term, while gold tends to be more stable. With the exception of GLD in 2009, both precious metals funds have outdone SPY each of the past four years, proving that their high correlation may not be all that big of an issue.


In the end, precious metals are still great safe haven holdings, but it is important to understand that there has been a strong correlation to equities over the past few years, and it may prompt you to reconsider how you allocate assets within your portfolio.


Related Articles:

1. Where Do Gold & Silver Rank in Vulnerability to a Recession Among Other Commodities?


A Barclays Capital research [report] notes that gold prices are vulnerable to a recession – more so than some of the other commodities. In the last recession of 2008, gold prices appreciated the least among precious metals. Below is a table that ranks 30 different commodities. Words: 571

2. Why Does Gold Fall When Financial Crises Worsen?


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3. Gold as a Safe Haven is Worthless!


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4. Ian Campbell’s Commentary: Gold – The Safest Haven?


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