How Does Gold Correlate to Stocks?

By | January 17, 2016


Dateline January 17, 2016: It may be timely to ask: How does gold correlate to stocks as investments? So far the new year has been brutal for those invested in stocks, with major losses during the first month of the year. Whether that continues throughout 2016 is anyone’s guess. Nevertheless, it is timely to look at the relationship between precious metals as an asset class versus stocks or even bonds.

Data From the Seeking Alpha Website

Gold Buffalo

Gold Buffalo Round

In an article recently published  on the financial website Seeking Alpha,  Marious Bausys reviewed the relationship between stock prices and the price of gold and other precious metals. Not surprisingly, gold price has a relatively low correlation to both to stock and bond prices. Thus, precious metals, whether in the form of bullion or coins, act as highly efficient diversifiers in investment portfolios.

Historical Performance of the Gold Relative to Stocks

Gold Bricking

Gold Bricks

An excellent review of the historical price relationship between gold and stocks is provided by Shawn Allen on the InvestorsFriend website. He looked at consecutive historical 20-year periods:

  • For the 20 years from 1946 to 1965, stocks returns were far superior to gold, as the globe emerged from WW II and economies began to prosper.
  • The 20 years from 1966 through 1985 were “ugly” unless one held gold. The yellow metal had very large returns as it was de-coupled from the U.S. dollar and the economy sagged.
  • During the period 1986 -2005, stocks outperformed gold, as the US and other world economies were humming.
  • Since the turn of the 21st century, stocks have been volatile. Overall gold has outperformed stocks, especially in the 2009-2010 stock-meltdown timeframe.

According to Martin “A major learning from the above graphs is that the markets look very different in different time periods. It would be foolish indeed to base your investment decisions solely on the results from the last 20 years or so”.

A Prudent Move to Make Now

Gold Eagle Coin

US Gold Eagle Coin

The data suggest that gold and other precious metals can outperform stocks in some time horizons. These time periods fluctuate over 10-20 year spans, correlating with times of economic expansion versus times when economies are not so healthy.

Holding a portion of your investments in gold and precious metals appears to be a prudent measure at any time, perhaps more so now, given the volatility and downward trend of the stock market in the first month of 2016.

Purchase your investment gold through one of our our preferred brokers, Golden Eagle Coins. Holding gold and silver can be an important hedge if the economies of the world continue to sour.

Update Jan 23, 2016:  Numismaster has recently compiled the return data for stocks versus silver and gold for the first 15 days of 2016. Check out these interesting numbers:

Year – to – Date Change

Gold  +2.95%

Silver + 0.73%

S&P 500 Stock Index  -8.00%

DJIA -8.25%

Shanghai Composite  – 18.03%

Yes indeed, having some gold and silver as a hedge does make good sense. Buy some bullion here: Golden Eagle Coins.

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