Gold and Equities—Unusually—Have Risen Together

An interesting feature of the financial markets over the past several quarters has been the concurrent rally in equities and gold prices. Gold’s year-to-date gain of more than 50%—even after this week’s volatility—puts it on an annual pace not seen in nearly 50 years, as central banks and investors alike have piled into the metal amid elevated risks and the potential for currency debasement. More recently, we’ve also seen other precious metals—including silver and platinum—break out to the upside.¹

Historically, equities and gold have both participated in the nominal drift of the global economy, but they typically have done so in a countercyclical manner, as gold has tended to thrive in conditions less supportive of equity investment.

One notable exception was the early 1970s, a period characterized by the fiscal pressures of the Vietnam War, the end of the Bretton Woods gold peg and executive branch pressure on the Fed to ease interest rates despite inflation pressures. Together, these factors contributed to monetary disequilibrium and ultimately a decade of stagflation.

While we don’t want to overstate the historical analogies, there are some evident parallels between that period and the current environment, including the fact that the US appears to be a long way from home base in terms of monetary and fiscal settings. All in all, the coincident surge of a potential hedge asset like gold alongside equities suggests that the value of money has come down.