Since 2006 the price of gold has tracked the inverse of US 10-year rates (10-year treasury prices) with uncanny accuracy as you can see in the chart below. A 90+% correlation of two unrelated investments for an extended period of time is rare. As an investor, if this were to hold, and you strongly believed US interest rates were going to rise, a good hedge to protect yourself from falling rates would be to buy gold. Of course, the opposite is true too. Rising 10-year rates/falling treasury prices could be offset by shorting gold.

While investing this way may sound well and good, I have found buying (or selling) an investment based upon the movement of another investment rarely works out over the long term. Correlations come and correlations go. What doesn’t, is Murphy’s law. Just when you discover the correlation and place an order to take advantage, the correlation no longer works. This is why it always makes the most sense to make investment decisions based upon the price movement of the investment you want to invest in. Nothing more, nothing less.