Stock Market and Gold Correlation

Apr 23, 2008: 12:16 PM CST

Intermarket analysis is a fascinating branch of market research, and I wanted to show you the performance of gold and the US Stock Market.

There’s been an inverse relationship, such that when gold rises, the market is generally falling and vice versa.

Gold is traditionally seen as a hedge against inflation, and inflation typically is seen as being negative for the stock market.

Also, in uncertain economic times (especially with a falling US Dollar), gold is a more attractive investment than US Stocks and so the two asset classes, much like stocks and bonds, compete for your investment capital.

This correlation holds on the longer time frame charts as well:

Notice that gold prices in 2006 around $600 were not a problem for the stock market. As signs of recession began to emerge, and investors began to be ‘spooked’ by deteriorating financial conditions, larger investors likely began rotating out of the US Stock Market and into other markets such as gold, bonds, etc.

We see the rotation accelerate as the stock market began to fall going into 2008, when the price of gold ‘skyrocketed’ from just under $700 per ounce to over $1,000 per ounce in March 2008. The S&P fell from a peak of 1,575 to just above 1,250 during the same period.

The recent fall of gold prices has contributed – with other factors – to a rise in the current stock market since March.

While there may be some correlation between gold prices and the US Stock Market, gold prices are much more inversely correlated with the US Dollar Index.


11 Responses to “Stock Market and Gold Correlation”

  1. Bill Luby Says:

    Hey Corey,

    Just a quick note to say that I have greatly enjoyed many of your recent posts, particularly the ones on gaps and intermarket analysis.

    Keep ’em coming!



  2. Eric Says:

    Good catch! I had been meaning to do some Gold vs. Stock correlation analysis, but never go around to it. On the whole, there does seem to be an inverse relationship. I need to crunch some numbers and look for stocks that are correlated with Gold, but would not be obvious. I do run a daily correlation of all stocks vs. all stocks to identify which stocks are correlated and inversely correlated.

  3. GoldIRA Says:

    The soaring gold prices would really effect the sale of gold…as people are already struck with a heavily turned down market…rising priced of gold withdraws yet annother option from them to grow their assets.
    Watch a free video on Gold IRA

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