Gold and Stocks Typically Don’t Go Together, Why Now

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Good morning traders,

Markets have been very strong lately as we once again push up near all time highs, but why is GOLD at all time highs also? Usually Gold is a “Safe haven” play for when people think the markets are or will be weak. Let’s take a look.

Why Gold Can Rally While Stocks Are High

Gold often behaves as a “safety asset” or inflation hedge, and its drivers can diverge from those of stocks. Here are several forces at play today:

1. Macro / policy uncertainty & rate expectations

• The market is pricing in interest rate cuts from the U.S. Fed, or at least a peak in rates. Lower future rates reduce the opportunity cost of holding gold (since gold yields nothing).

• If real interest rates (nominal rates minus inflation) turn negative or stay low, gold becomes more attractive as a store of value.

• There’s uncertainty over central bank policies, political pressures on the Fed, and fiscal strains (debt levels, deficits) which all increase tail risk.

• Gold is benefiting from narratives of central bank “independence risk” (i.e., fear that monetary policy may be second-guessed).

• HSBC says gold could continue past $4,000/oz near term, citing geopolitical stress and policy risks.

• Gold recently vaulted past $4,000/oz, fueled by safe-haven demand and expectations of easing interest rates.

2. Weakening U.S. dollar / currency factors

Gold is priced in U.S. dollars, so a weaker dollar makes gold cheaper for holders of other currencies, boosting demand.

• There is pressure on the dollar from fiscal deficits, political risk, and capital flows.

• Some markets and central banks are diversifying away from dollar-centric assets. For example, China’s gold buying is part of a broader push to reduce dependence on U.S.-based finance.

3. Institutional & central bank demand

• Central banks are big buyers of gold (for reserve diversification). That structural demand supports the price floor. 

• ETFs and passive inflows: gold-backed funds have seen record inflows, which add to physical demand. 

• As more institutions and sovereigns treat gold as a strategic asset (rather than just a speculative one), it gains a more stable demand base.

4. Geopolitical risk, inflation & systemic concerns

• Global tensions, regional conflicts, political instability — all these drive safe-haven demand for gold.

• Inflationary pressures: if inflation remains sticky, real assets like gold become more attractive as a hedge.

• Debt levels and fiscal stress: the combination of high public debt + rising interest burdens can spook markets; gold acts as insurance.

• FOMO and momentum can amplify the move: once gold is seen as “breaking out,” further buying can feed on itself. Some analysts are calling this “gold-plated FOMO.”

5. Changing correlation regimes

• Historically, gold and stocks have had low or even negative correlation — i.e., gold tends to hold up when equities fall.

• But correlations are not fixed. In “risk-on” environments or broad liquidity expansions, gold and equities can move together.

• Reports indicate that gold’s correlation with the S&P has recently hit multi-decade highs.

• In other words, gold is not operating in a vacuum; it may be riding a broad wave of liquidity and speculative appetite that is lifting many asset classes simultaneously.

Why This Moment Is Special (Versus “Normal” Divergence)

The current Gold + Stocks co-rally suggests the market is not just bifurcating into “risk / safe” modes. Instead, we might be in a liquidity-driven rally or macro “melt-up” where cheap money, expectations of easing, and fear of missing out push both risk assets and safe havens such regimes, gold ceases to be just a hedge; it becomes part of the speculative setup. Also, gold has broken into uncharted territory (as of this writing, gold crossed $4,000/oz) which itself can create momentum and psychological buying. Another factor: market positioning and crowded flows. Some investors may be under-allocated to gold; as they “catch up,” that incremental demand can be disproportionate in a strong rally.

Risks / What Could Go Wrong

• If the Fed disappoints by being more hawkish or delaying rate cuts, gold could suffer.

• If inflation comes down faster than expected, the appeal of gold as an inflation hedge weakens.

• A strong dollar rebound would put pressure on gold.

• Equity corrections could reverse the “momentum lift” that gold is currently riding alongside stocks — if capital rotates back into equities or bonds, gold may see outflows.

• Overbought technical conditions may result in a pullback or consolidation.

Jeff Williams

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