Gold Hedge or investment
Gold is often considered a safe haven when equities fall. Here’s why gold tends to perform well during stock market downturns:
1. Gold is a “store of value”
- Gold has intrinsic value and has been used as money or wealth for thousands of years.
- Unlike stocks, gold doesn’t represent a business that can lose revenue, fail, or go bankrupt.
2. Equity falls = fear rises = gold demand rises
- When stock markets fall, it’s often due to economic uncertainty (recession, war, inflation, etc.).
- In such times, investors flee to safety, and gold is one of the first assets they turn to.
3. Gold has low correlation with equities
- Gold and stocks often move in opposite directions.
- This diversification makes gold a hedge in a balanced portfolio.
4. Gold benefits when central banks cut rates or do QE
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In bear markets, central banks often:
- Cut interest rates (bad for banks and bonds)
- Inject liquidity via money printing (quantitative easing)
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These actions can lead to currency devaluation and inflation → boosting gold prices.
5. Gold is seen as a hedge against currency devaluation
- If equities fall due to poor economic policy or high inflation, fiat currencies (like INR, USD) may weaken.
- Gold is priced in those currencies, so when they fall, gold prices rise.
6. Flight to physical/tangible assets
- During financial crises, paper assets (stocks, bonds) may seem risky or uncertain.
- Gold is a real, tangible asset you can hold—this appeals to investors in times of distress.
Example: COVID-19 Crash (March 2020)
- Equity markets crashed → Gold initially dipped (liquidity panic) but then surged.
- In 2020, gold crossed ₹55,000 per 10g in India as investors ran to safety.
Summary Table
| Reason | Impact on Gold |
|---|---|
| Stock market panic | ↑ Gold demand |
| Inflation | ↑ Gold as hedge |
| Currency weakening | ↑ Gold price in INR/USD |
| Low interest rates | ↑ Appeal of gold (no yield needed) |
| Uncertainty (war, recession) | ↑ Safe-haven buying |
Discussions
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- Why are SGBs trading below their intrinsic value?
- What is gold price Prediction for 2025?
- Is gold really the “safe haven” everyone thinks it is?