The World Gold Council found that, in the past 10 years, the average correlation for gold with U.S. equities and short-term cash bonds was close to zero. However, in recent months, it may have appeared otherwise to some investors. When market volatility spiked in February, gold and stocks would occasionally move together. Similarly, when inflation talk filled the market, both assets rose. This observation had some wondering if gold was really the diversifier to stocks.
Director of Commercial Hedging at Walsh Trading Sean Lusk said two things caused gold and stocks to briefly move together: a weaker dollar and the reflation trade. Frank Holmes, the chief executive officer and chief investment officer at U.S. Global Investors, believes the dollar will remain weak, which will strengthen gold in turn.
Managing Director at RBC Wealth Management George Gero observed that “the price of gold is an economic and political barometer.” If the White House’s announcements continue to surprise markets – like with the China tariffs – gold may reestablish itself as a safe haven.
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