Free Trial

Gold Still Offers Protection Against Market Shocks

  • Since it reached its peak in August 2020, gold has been constantly reaching lower highs despite rising inflationary pressures in most EM and DM economies.
  • Even though some investors may have lost interest in the precious metal due to its poor performance in the past 15 months, it is important to notice that gold has historically acted as a strong hedge against rising uncertainty and price volatility.
  • Gold was up 7.7% during the Q4 2018 equity selloff (when SP500 was down 14%) and was up 3.9% in Q1 2020 while SP500 plunged by 20%.
  • Therefore, the precious metal has historically offered good 'protection' against market frictions.
  • This chart shows that the Gold/SP500 ratio generally rises when price volatility (VIX) surges.
  • Hence, gold still offers good diversification for investors looking for 'hedges' as the rise in uncertainty due the discovery of the new variant 'Omicron' could lead to a sudden rise in volatility in the near term.

Source: Bloomberg/MNI

To read the full story



MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.