As money is shifted around in the markets, asset classes of varying types are being pushed to new heights. This has created an unusual situation in which stocks, Treasuries and gold-related exchanged traded funds (ETFs) are moving higher in tandem.
During the credit collapse, investors dumped gold, corporate bonds, stocks and commodities in favor of U.S. Treasuries, comments Gary Gordon for ETF Expert. Then starting in March of 2009, stocks and gold rallied while interest in Treasury bonds waned. However, the three asset classes began to move in unison over the last three months.
What could be the reasons? Among the theories being floated (and the real answer could include any combination of these) include:
- Investors are beginning to take all that cash from under the mattress and are putting it back into all corners of the market, whether it’s low-risk or high-risk assets
- Portfolios are being swapped for entirely new strategies
- Gold is in demand for its hedge against the weakness of the U.S. dollar
- Stocks, to an extent, may also be used to hedge against inflation and people are buying them to avoid missing out any any further recoveries in the markets
- Long-term Treasury yields have been significantly diminished and it may be the first asset class to decouple from this threesome, says Gordon
In the off chance that investors start favoring Treasuries again, stock investor, and maybe some gold traders, may think twice and consider shifting wealth into the safe haven. On the flip side, the stock markets may gain more if investors favor risk above the safety of Treasuries.
- SPDRs S&P 500 (NYSEArca: SPY): up 11.1% in the last three months
- SPDR Gold Shares (NYSEArca: GLD): up 5.4% in the last three months
- iShares Barclays 20+ Year Treas Bond (NYSEArca: TLT): up 5.2% in the last three months
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.