Gold’s Relationship Statuses (tldr: it’s complicated)

1. Gold and inflation

Gold has long been regarded as a safe haven asset by investors and bankers alike. Gold’s quantity is limited unlike fiat money so it is suitable as a store of value or as a hedge against inflation

2. Gold and interest rates/the bond market

Gold’s has an inverse correlation with interest rates, especially when they rise. Since gold does not offer carry, dividends or interest, high yields, which typically materialize in response to rising inflation, dampen the asset’s attractiveness.

3. Gold and the dollar

Gold’s value is most often discussed in US dollar terms, expressed commonly as spot gold, XAUUSD or USDxxxx per troy ounce of gold. Hence, it also has an inverse correlation with the dollar, whereby dollar weakness results in a higher spot gold price, and vice versa.

4. Gold and the stock market

Spot gold price has a low historical correlation with the major equity markets. In fact, when high volatility or ‘black swan’ events like the Russian invasion of Ukraine occur, a phenomenon known as ‘flight to safety’ happens, where investors will dump risky assets such as stocks in favour of keeping their money in safe haven assets such as cash or gold.

5.Gold and the individual investor (You!)

One of the best benefits of investing in gold is diversification — a method for reducing your investment risk by holding multiple types of investments, including stocks, bonds, alternative assets like gold and more. Gold is considered an alternative asset, or an investment type that is not stocks, bonds or cash. Increased investor interest in diversification away from the US dollar and the strong central bank appetite for accumulating gold is expected to sustain demand for the precious metal in the years to come. Typically, investors should allocate no more than around 5% to 10% of their portfolios to alternative assets such as gold.

Credits: Nasdaq, Inc.