Since January 2016, the S&P 500 index (SPX-INDEX) has risen nearly 23.0%, as of August 3, 2017. Gold prices (GLD) have risen nearly 16.0% during the same period. The SPDR Gold Shares (GLD), which tracks the performance of gold, rose nearly 17.0%, and the iShares MSCI Global Gold Miners (RING), which tracks the performance of gold miners, rose nearly 64.0% during the same period.
In the past, we’ve seen that when the equity market tumbles, investors moved toward safe-haven assets such as gold and the Japanese yen (FXY). Gold outperforms in that scenario. In 2008, when the global debt crisis spooked the equity market, gold rose about 145.0% from September 2008 to July 2011, while the equity market took a huge fall. Since July 2011, the S&P 500 index has risen about 62.0%, touching its high of 2,130 in July 2015. During the same period, gold fell about 92.0%.
It shows that the equity market and gold have an inverse relationship. They are negatively correlated. Between January 2010 and December 2015, GLD had a negative correlation factor of 0.89 with the S&P 500 index. However, in the present situation, both the S&P 500 index and gold are moving in the same direction. According to Faber, this situation might lead to a great disruption in the market.
- Source, Market Realist
