One major benefit of investing in gold is that it has traditionally followed the price movements of the benchmark S&P 500 Index, which makes gold backed iras a great tool that investors can use for diversification.
Data provided by financial research firm Morningstar indicated that historically, the SPDR Gold ETF has traditionally had a 0.11 percent correlation to the S&P 500 Index, according to InvestmentWeek. Such a weak relationship between the price movements of the financial instrument and the benchmark index means that the two can potentially be combined to create a diversified portfolio.
The idea behind creating a portfolio with true diversification is combining assets that do not follow each other in their price movements. The goal is to include different securities that create as little volatility in the total value of one’s assets as possible.
It is important to note that the correlation between the S&P 500 Index and the SPDR Gold ETF has fluctuated in recent years, the media outlet reports. During the credit crunch, this relationship fell to 0.02 percent. It dropped further between 2009 and 2011, moving to minus 0.13 percent. This gradual decline in the relationship between the prices then changed dramatically, as the correlation surged to 65 percent since then.