Why the Stock Market And ‘Safe Haven’ Gold Are Currently Moving In The Same Direction

by Laura Brafford Finance Executive
It may not be obvious for you now, but keen observers are now drawing some parallels between gold and the stock market. The best international trading brokers have always considered gold a haven - an asset to hide cash when things get hard on the stock market. 

Over the years, the value of gold has remained stable, regardless of the turmoils facing the economy. But is gold still a safe port in a raging storm?

Gold price is now almost at its 9-year high and is within the striking distance of achieving this record. This is a very interesting phenomenon given that other assets such as equities, traditionally viewed as volatile, are beating the odds rebounding from coronavirus-inspired lows they suffered at the beginning of the year.

What is baffling the best online investment companies is that gold prices and stock markets are expected to have an inverse correlation, but this is not the case now. From historical data, when stocks are down, gold prices are supposed to be high, and vice versa. 

But why would the gold price increase at the same time that the stock market is buoyant? The explanation given by many experts points to opportunity costs. Globally, central banks have put concerted efforts to push interest rates down mean that traders who have not disposed of their gold are not missing out on the gains they would have made if they held bonds in the usual circumstances. The interest rates in question are those that have fallen below zero in inflation-adjusted or real terms.

As Jeff deGraaf explains, when real yields become negative, there will be no opportunity cost for holding onto non-yielding assets, especially when looked at from the historical point of view of the purchasing power of fiat currencies. Jeff is the chairman of Renaissance Macro Research. LLC, a company that’s dedicated to understanding and deciphering the main factors that affect investors by providing unbiased, insightful, and unique stratified analysis from trailblazers in the industry.

Data from top trading platforms in the world show that August gold fell 0.9%, or $16.80, and settled at $63.60 per gram ($1,803.80/ounce) just a day after the raciest contract rose by 0.6%, settling at $1,820.60. 

According to FactSet, gold remained up 0.8% for a whole week and over 18% higher compared to last year. 

Another keen observer, Georgette Boele, an ABN Amro’s precious-metal expert, said that gold and stock market are currently moving in lockstep as reflected by the Dow Jones Industrial Average, and assisted by the drop in real yields.

Boele said that the policy laid down by the central banks on interest rates is the strong force behind the rising gold prices. The official rates are not only close to zero in many countries, but they are unlikely to increase soon.

This is something that many top online stock brokers are watching keenly, given that several central banks have already announced decimal easing. 

It is worth noting that the Federal Reserve is already embarking on unlimited quantitative easing, and the European Central Bank and the Bank of Japan are also putting in place large programs.

This is good news to gold bugs because as money floods the markets, currencies will decline, and gold prices will stabilize. But what about the stock market? The best online trading platforms are already monitoring how the stock market will respond after which, they will advise their clients accordingly.

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About Laura Brafford Junior   Finance Executive

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Joined APSense since, July 6th, 2020, From Cape Town, South Africa.

Created on Aug 14th 2020 11:23. Viewed 132 times.


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