From refuge to coexistence: why gold and equities no longer take turns
For decades, financial markets operated within a relatively stable set of macroeconomic relationships. Equities - represented above all by the S&P 500 - embodied the bet on real growth in the US economy. Government bonds (Treasuries) reflected the cost of capital and expectations around inflation and monetary policy. The dollar fulfilled the role of global reserve currency and safe haven. Gold, finally, was the monetary asset par excellence: yield-less, held as protection against inflation, geopolitical instability and a loss of confidence in fiat currencies.
Rising real interest rates tended to strengthen the dollar while weighing on gold and equities, and vice versa. The correlation between gold and the S&P 500 was therefore historically negative or close to zero: growth versus hedge, risk versus refuge.
This framework held for much of the post-war period, with a notable exception in the early 1980s. Following the inflationary surge of the 1970s and gold's peak in 1980, the monetary shock engineered by the then head of the US central bank, Paul Volcker, pushed real interest rates sharply higher. The move triggered a deep recession but restored the credibility of monetary policy. Both gold and the S&P 500 responded positively to the stabilisation of the new disinflationary regime, illustrating how a positive correlation between the two can emerge during periods of profound macroeconomic transition.
In the post-pandemic period, the historical relationship between gold and the S&P 500 has once again broken down. Data analysis suggests this is not a short-lived anomaly, a point also underscored by the recent sharp correction in gold prices and the more limited pullback in equities following the election of the new Federal Reserve chair, Kevin Warsh.
The difference relative to the early 1980s, however, is substantial. Back then, a positive correlation signalled a rebuilding of credibility: high but sustainable real interest rates, a strong dollar and manageable public debt. Today, by contrast, it appears to reflect a fiscal and systemic risk premium. Elevated public debt complicates any prospect of sustained monetary policy normalisation, while policy decisions taken in recent years - at times inconsistent - have limited the ability to anchor expectations over time and to restore the traditional macroeconomic relationships across asset classes.
