Gold may no longer be a secure bet in times of strife

The price of gold reached a historic high in April and remains close to that value. Conventional investing wisdom puts gold as a “safe-haven” asset – one that investors move towards in times of crises as they desert higher-risk assets such as stocks. But in August, the S&P 500 stock index also hit a record high and, like gold, it too remains close to this value.

Historically, those who follow these markets would have expected gold and stock prices to move in opposite directions. This typically produced the “hedging” effect of gold – it would offset losses (and gains) from stocks.

But while “safe” gold and “risky” stocks rise at the same time, the value of gold as a more secure bet in times of strife could be diminishing.

Looking at the price of gold historically shows that it rose in response to the oil price shocks of the 1970s as the global economy fell towards recession. It fell during the late 1990s as stock markets boomed, and as the global economy recovered after 2009.

But since this point, it has shown a trajectory largely in common with stocks. New research I was involved in looked at several reasons these traditionally opposing forces have been converging – and causing gold’s safe-haven effect to fade.

Right now, the global economy is...

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