Although much is talked about the correlation between the value of gold coins and the stock market level, there is no conclusive evidence of the truth of the correlation.
There are many factors that can cause the gold prices and stock market to react independently. In proven and recurring financial crises, the stock market can be adversely affected by bank failures, high inflation, international tensions and even commodity or currency crises while gold prices are unfazed.
Gold and Stocks
It is necessary to note that these two entities do not counter off each other in any way, much less their pricing although historical evidence shows otherwise. A long term study of these entities’ correlation displays that this unlike pair tends to perform quite the opposite to each other in terms of pricing. This empirical evidence was gathered by the global Gold Council over a long time where the gold price was measured against the main stock indices like the DJIA or Standard and Poor’s 500.
But no matter how good a particular stock is performing, it can never exceed that of gold over the long run; even for blue chips and aggressive companies. Hence, gold is supreme as an alternative investment over stocks; that is what compels many to buy gold.
Gold Phenomenon
History lists examples to prove this phenomenon. It was U.S. worst stocks market performance that was experienced in 1973 and 1974 when the DJIA dropped about 45%. The probable cause of this phenomenon was “stagflation.” But during this while, gold price was recorded at $195 per ounce as accorded by London Fix from its earlier $65 per ounce; that was a rise of over 200%.
Again in October 1987, another bear market caused the DJIA to drop 30%. But the gold price rose beyond $500 an oz. which was a record high since 1983.
The last few months of 2008 saw the financial crisis of US subprime mortgage and failures of banks and financial institutions which caused the stock market to drop in performance. This was the time when the previously solid US monetary system rocked its very financial foundation. The DJIA dropped not only just a few hundred but a few thousand points. But gold price rocketed to a new high of above $1,000 an oz.
No great financial expert can accurately predict the path of either the stock or gold market. Historical facts only show that gold and stocks seem to be negatively correlated in the long run; hence, for any investor, it is a wise move to have gold as part of their investment portfolio besides stocks, bonds or cash if they want to brace themselves for any bear markets.
There are many factors that can cause the gold prices and stock market to react independently. In proven and recurring financial crises, the stock market can be adversely affected by bank failures, high inflation, international tensions and even commodity or currency crises while gold prices are unfazed.
Gold and Stocks
It is necessary to note that these two entities do not counter off each other in any way, much less their pricing although historical evidence shows otherwise. A long term study of these entities’ correlation displays that this unlike pair tends to perform quite the opposite to each other in terms of pricing. This empirical evidence was gathered by the global Gold Council over a long time where the gold price was measured against the main stock indices like the DJIA or Standard and Poor’s 500.
But no matter how good a particular stock is performing, it can never exceed that of gold over the long run; even for blue chips and aggressive companies. Hence, gold is supreme as an alternative investment over stocks; that is what compels many to buy gold.
Gold Phenomenon
History lists examples to prove this phenomenon. It was U.S. worst stocks market performance that was experienced in 1973 and 1974 when the DJIA dropped about 45%. The probable cause of this phenomenon was “stagflation.” But during this while, gold price was recorded at $195 per ounce as accorded by London Fix from its earlier $65 per ounce; that was a rise of over 200%.
Again in October 1987, another bear market caused the DJIA to drop 30%. But the gold price rose beyond $500 an oz. which was a record high since 1983.
The last few months of 2008 saw the financial crisis of US subprime mortgage and failures of banks and financial institutions which caused the stock market to drop in performance. This was the time when the previously solid US monetary system rocked its very financial foundation. The DJIA dropped not only just a few hundred but a few thousand points. But gold price rocketed to a new high of above $1,000 an oz.
No great financial expert can accurately predict the path of either the stock or gold market. Historical facts only show that gold and stocks seem to be negatively correlated in the long run; hence, for any investor, it is a wise move to have gold as part of their investment portfolio besides stocks, bonds or cash if they want to brace themselves for any bear markets.
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