Forbes: Gold Being Used As Hedge Against Stock Correction

Investors appear to be using gold as a hedge against a potential correction in equity markets as the S&P 500 Index trades close to its all-time high price.

George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures, said for the last few weeks, gold and equities have been moving in tandem, which could be a signal that investors think equities might soon lose some momentum.“The funds are using gold to hedge against equities” he said.

Gero added that open interest of gold options was “unusually high,” give that Tuesday was an options expiry.

Peter Buchanan, senior economist at CIBC, agreed that gold appears to be benefiting from investors taking a cautious stance on equities.

“Stocks aren’t cheap by any means” he said. Looking at the gold market, Buchanan said that although the Federal Reserve will continue to taper its quantitative easing strategy, it will continue to keep interest rates lower and maintain a loose monetary policy.

Buchanan also said that gold is probably doing well because it ended the year extremely oversold. He added investors are starting to see value in the yellow metal again.

“Last year we had a rotation out of gold and into equities, but right now there is a sense that having a bit of gold in your portfolio isn’t a bad idea,” he said.

Frank Lesh, broker and futures analyst with FuturePath Trading said  gold’s rally also has “technical validity” after a breakout around $1,280 mid-month and with the metal also above all of the major moving averages, Lesh added.

Like others, Lesh said some market participants may question whether the rallies in equities will hold if economic data remains soft, and they may be buying gold as a result.

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