Here is conventional wisdom in which the investors have unquestioned faith, and biblical belief. Gold is a hedge against risks (read: stocks); whenever stocks are down, gold is up due to uncertainty and volatility, and vice versa. For decades after World War II, and even before it, the maxim stood its ground. It seemed like something embedded on the yellow metal, and not ephemeral like the paper valuations of stocks. But if you are still a believer in it, you need to get out of the investment theatre, and stick to fixed deposits and pension funds. There is no hope for you.
New studies tell us that over the past decade or so, especially after the Financial Crisis of 2008, gold’s trajectory is the same as that of stocks. ‘Safe’ gold and ‘risky’ stocks have risen at the same time. According to one of the participants in a new research which reaches this conclusion, this causes “gold’s safe-haven effect to fade.” In effect, traditionally opposing forces are converging, and the bullion can no longer be acceptable as a hedge against volatility. It too can fall when stocks do, or rise when shares do. There is no guarantee that it will act as a shield or protection against risks.