Equities, gilts and gold rally in anticipation of QE2

ON ASSET ALLOCATION

T. Bailey's Elliot Farley on the unusual correlation between three disparate asset classes

Equities charted a course through uncertain waters to post very respectable returns in the third quarter despite some less than encouraging global macroeconomic data. Unusually, this healthy period for equities was also one of strong returns for gilts and gold. Such a correlation between these disparate asset classes over a relatively short space of time is an uncommon occurrence. The explanation may well be anticipation by the markets of a second round of quantitative easing, which has already earned the affectionate nickname of QE2. This expectation seems to be borne out by the mi...