Gold managed a 1.8% surge today (back above $1690 and its 200- and 100-DMAs and its largest jump in 2 months) from Friday's close thanks to the combination of the ECB on Friday and Merkel and Bernanke today assuring the world that anything more than a 2% dip in stocks will not be tolerated. While Silver outperformed Gold from Friday's close, based on its 2-3x beta of the last year this was a notable 'underperformance' as Gold outpaced everything (beta adjusted). Perhaps importantly, the S&P 500 when priced in gold met and rejected resistance at a key level today - even with its nominal 30pt rally off of Friday's S&P lows. Volumes were abysmal with stocks well below YTD average and the S&P futures 20% below average and among the lowest few days' volumes of the year. Credit markets did not participate as exuberantly (though HY outperformed IG as you would expect) but the day seemed split into 4 segments: pre-Bernanke (quiet/sideways), Bernanke to US Open (rampfest, Gold outperforms, TSY rally), US Open to EU Close (TSY selloff notably, equities sideways, Gold rips), and then from EU Close to US Close (Equity/Gold/TSY rally as USD leaked lower). In FX, JPY was relatively stable at its lows after Bernanke's speech as the rest of the majors strengthened versus the USD (as EUR broke above 1.3350 once again). Oil managed a small rally on the day but underperformed the USD's 0.5% weakness from Friday as Treasuries were very flip-floppy today - ending the day with a small twist around 7Y (30Y +3bps). VIX made new lows and closed there as the term structure flattened further to its flattest in almost 4 months (with the largest six-day flatttening in 8 months).
The S&P priced in Gold appears to have met and rejected resistance at around this level but of course this does nothing to slow the nominal equity rally that is now ignorant of anything but centrally planned rhetoric...
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and ES (the S&P 500 e-mini futures contract) rallied right up to the long-run (March 2009) rally low up-trendline (and also its post-Thanksgiving Day rally up-trendline too)...
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The equity market excitedly outperformed credit today (as stocks were led by Healthcare - Obamacare-related and then the typical high-beta Financials, Industrials, and Discretionary but everything was up today).
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Oil generally ignored all the hullaballoo of the precious metals and copper surging and tracked much more closely with the USD today...
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As is clear, Copper and Silver outpaced Gold today BUT on a normal beta-adjusted basis the Gold move is considerably larger.
The day seemed to break into 4 segments in terms of correlated market action...
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Given the pre-Bernanke pre-amble, it is evident just how big a 'beta' adjusted day Gold had. Treasuries were confused as the standard QE-on trade fell apart on some US-Open to EU-Close selling which appeare to translate directly into gold buying from the chart above. After Europe closed, the game was on and Vol was crushed, Stocks ramped, Gold soared and Treasuries rallied back to their best levels of the day (though the long-end underperformed the short-end from Friday's close).
VIX closed at its lowest since June 2007, unable to take out the intraday lows though from a week or so ago). What is most interesting is the start of a capitulation in the term structure - i.e. the premium for protection is coming down notably not just in the front-month but in later months where investors/traders have been keeping their hedges on. While painful, until this plays out to more normalized 'flatness' (which are actually approaching rapidly now) there is too much ammo to keep pushing higher as shorts cover or hedgers capitulate.
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As the VIX/VXV term structure ratio (or relative flatness of the term structure of volatility) has seen the last six days show the biggest flattening in 8 months as the term structure is nearly normalized to its 50DMA...
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What is quite entertaining is watching CNBC explain this new reality as dismal data disappointing everywhere and Pisani facing up to a new normal non-recovery in housing and yet the performance of stocks is somehow magically fundamentals supported by the Fed's actions (indirectly instrad of directly via pure debasement)...you can tell even their tough veneer of perma-bullishness is starting to crack at the addicted loquidity-fueled monster than Ben and his friends have unleashed...
Charts: Bloomberg