Traditionally gold and stocks are thought have an inverse price relationship. When stocks rise gold falls, and vice versa. That isn’t always the case, just a rule of thumb. And in general the relationship pertains more to bull markets. When stocks are in a bull market gold is not, and when gold is in a bull market stocks are not. But this year both stocks and gold have gained in value. Why is that?
Gold’s performance this year has already been phenomenal. Up over $50 on the year, it looks to easily surpass many analysts’ predictions, conservative though they may have been. $1,350 should be pretty easily achieved, and $1,400 is well within reach this year. But why is gold gaining in value when stocks are too?
Very few people realize it, but both professional investors and retail investors have been selling stocks for the past three months. Investors of all stripes are fearful of an oncoming recession, so they’re selling their stocks in favor of more risk-averse assets such as bonds and cash. And of course many are also buying gold.
Gold demand already increased significantly last year in Europe after European investors feared a recession, so now it’s time for American investors to start increasing their purchases. While many have already done so, there are undoubtedly many who are still sitting on the sidelines, distracted by rising stock prices.
But the primary factors behind those stock price rises are an increased level of stock buybacks and possible short covering by investors who bet on market crashes that haven’t yet materialized. Those crashes will occur, but those who mistime things and have to cover their short positions are paradoxically propping up the markets they expect to fall.
The long and the short of things is that high stock market prices are covering up the reality that the economy is not in great shape and that a recession is around the corner. Are you preparing for that recession by investing in gold to protect your assets, or will you wait until your retirement portfolio starts to lose tens of thousands of dollars before you realize that you should have bought gold sooner?
This article was originally posted on Goldco.
