There is a good chance that gold will not fall during a stock market crash and, in fact, it is likely to rise instead. Silver could depend on whether it is in a bull market. In general, gold performs relatively poorly when stocks are in a bull market. One reason is that gold is not an income-generating asset nor does it represent growth in a particular company or sector.
Rather, it is valued for its relative scarcity and its socio-historical precedent as something of value. Therefore, when the economy is growing and corporations are doing well, stocks tend to be more attractive to investors. The markets have peaked and will continue in a bear market until 2024, and the Fed cannot do anything about it. If farmers get a low-yielding harvest after a bad monsoon season, their collective lack of buying gold affects gold investments across the country.
Selling shares to finance a gold purchase wouldn't be wise for ordinary investors because it's a panic-driven move, said Charlie Fitzgerald, CFP, principal and financial advisor to Moisand Fitzgerald Tamayo in Orlando, Florida. Gold prices can also move as investors react to news from other markets, such as changes in interest rate policy. When the stock market goes wild, gold often becomes the gold standard in the eyes of everyday investors. Which makes sense that economic growth and stability will drive stocks, while crises and economic hardships benefit gold.
People need housing to live in and oil for gasoline to drive their car, and the stock value is based on the profitability of the corporations represented. Despite President Roosevelt setting the price of gold in the 1930s, shares of Homestake Mining, the largest gold producer in the United States at the time, increased more than 100%. This indicates that over the past 30 years, corporate bonds have yielded around 330%, slightly below that of gold. The monsoon season plays an important role in gold consumption because when the harvest is good, farmers use their profits to buy the precious metal to create assets.
Interest rates play an important role in gold prices because of a factor known as Opportunity Cost, the concept of giving up an almost guaranteed profit on a particular investment for potentially more significant growth in another investment. Gold prices rose to multi-year highs in the early days of the Covid-19 pandemic, for example, as cases spread internationally and the stock market slumped. It is supposed to act as a safety net when markets are in decline, since the price of gold does not tend to move with market prices. A fall in the stock market usually leads to an increase in gold prices because there is a negative correlation between stock prices and the value of the precious metal.
When the price of gold rises dramatically in a short period of time, usually because speculators raise prices beyond their intrinsic value, a gold bubble forms. In fact, panicking and selling could mean investors didn't have the risk appetite to be in stocks, Fitzgerald said.