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Safe and Sane Investors Turn to Gold

Does anyone remember those old days when U.S.Treasuries were considered the safe haven asset, and gold was considered a quirky, volatile, fuddy-duddy, thing that tin-foil conspiracy theorists bought?

Well, either times have changed, or people have finally come to their senses. The latest salvo against the sovereign paper trade is this chart, posted by Michael A. Gayed, CFA over at The Big Picture, interestingly titled “Gold = Treasuries.” The most interesting thing is the chart. In a period of two years, gold’s correlation with Treasuries has gone up from 0.5 to 0.89, meaning that Treasuries have moved practically in lockstep with gold.     

Correlation is a statistical measurement of the way two securities move together. If the stock market and gold move up and down in lockstep, they would have a perfect correlation of 1. A correlation of 1 between two assets means they move in the same direction 100% of the time. A correlation of -1 means they move in the opposite direction, and a correlation of zero implies no relationship.

Gold has also outperformed Treasuries over the same period—meaning gold has really become the premiere safe haven asset—and the stock and gold markets are screaming the same. While investors have painfully short memories, a quick study of history shows that gold and silver have been safe haven assets for thousands of years.  

The only question is, when will headlines read “Gold > Treasuries”?