Key Takeaways with Craig

US Equity Indexes rallied and Treasury yields ticked slightly higher a day after the FOMC left its Fed Funds target rate unchanged.  Implied volatility in CME’s E-mini S&P 500 and Nasdaq-100 both declined to below the 3-month average closing level.  CVOL in the Treasury options was little changed on the day. 

Gold futures prices rose again, this time by 2% in the March contract.  Some of the more deferred Gold futures contracts are now trading at over $2,300 per ounce, though the nearby contracts are trading near $2,200.  One of the interesting things about this recent rally in Gold prices is that it has come during a time of steady to rising Treasury yields.  As you can see in the top graph below, compiled using QuikStrike data, over the last several weeks, the price of Gold has continued to rise (orange line), while the price of CME’s 10-Year Treasury future has fallen, which means the yield has risen (remember, price and yield move inversely to one another).  While many factors impact the price of Gold, higher interest rates can, in some cases, pose headwinds for Gold because Gold is a non-interest bearing asset and, if higher interest rates in the US lead to a stronger Dollar, this can sometimes negatively impact the price of Gold. 

Looking at this in a different way, we used CME’s Cross Correlation tool to examine the historical correlation between the price of the 10-Year Treasury and Gold.  Sure enough, as you can see in the lower graph, the correlation between the price of the 10-Year versus the price of Gold has broken down since the beginning of March.  Further, it’s not pictured below, but the correlation between the price of the Euro FX and Gold has also declined materially since last Fall.  

Today's Future Price Action

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