Investment

Is there a correlation between gold prices and stock market performance?

If the past performance of these instruments is anything to go by, there is a deep connection between the two.

While there is no accurate theory that brings out a concrete correlation between the value of gold and the performance of the Indian stock market, a brief look at the history of investing habits of Indian investors paints a complicated picture.

In the 70's, the value of gold soared significantly, while the stock market remained flat. However, in the two decades that followed, gold prices remained comparatively stagnant, and the stock market gave exceptional returns. From the above data, it can be derived that these two shared an inverse relationship until 2002.

While there is no accurate theory that brings out a concrete correlation between the value of gold and the performance of the Indian stock market, a brief look at the history of investing habits of Indian investors paints a complicated picture.

But such a relationship ceased to exist after 2002. Both the instruments moved upwards in tandem for a few years. They gave investors an opportunity to benefit from the bull market until the global recession of 2008, the year when stock markets around the world collapsed, and gold too gave very moderate returns.

Though cyclical in nature, there was a certain connection between the two instruments until 2008. But post the recession, gold continues to offer good returns continually till today, while the stock market remains volatile; this indicates that there is little correlation between both.

It would therefore be futile to invest in one instrument today by simply observing the performance of the other.

If you are considering both instruments for investments, financial experts suggest having a balanced portfolio, which consists of not only stocks and gold, but also other avenues like fixed deposits, bonds, etc.

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