Gold Price Vs Stock Market: Gold and Equity Have An Inverse Relationship

When the gold price goes up, the index underperforms. The gold price vs stock market has a correlation? Yes, there is a negative correlation. In this context, gold is often referred to as a safe haven for investors. But when we refer to gold as ‘SAFE’ we are talking about safety with respect to what? Gold works as a safety cushion for investors against the stock market’s volatility.

Gold and stock market correlation cannot be established directly. But when we see the historical performance of ‘gold’ and ‘stock market’ we can understand it better. Generally speaking, gold and equity have an inverse relationship. This means, that when the gold price goes up, prices in the stock market will fall and vice versa.

Historically it has been observed that when the stock market is most pessimistic, gold performs very well. This gold price vs stock market correlation is valid for all world economies. The sale of gold coins, gold bars, and gold ETFs is maximum when the stock market is performing badly.

It has also been observed that gold demand picks up fast when a country’s GDP growth rate is faltering. In such situations, people prefer to park their money in hard assets like gold. Currency-based investments are left alone. The stock market is one such investment option that goes out of favor in a financial crisis.

This information that gold and equity have an inverse relationship is valuable information. It helps in the creation of a diversified investment portfolio.

Case study – Gold price vs stock market correlation

Consider a boy who was born in the year 1989. The boy started buying index funds right from his 18th birthday. It was May’07 and Nifty50 was hovering at 4,296 levels. He bought his first index fund units worth Rs. 25,000. He also decided to diversify his investment portfolio. Hence, he also purchased Rs.10,000 worth of gold ETF (at 8.82 levels).

The Year 2007-2009 (Market Crash)

Gold Price Vs Stock Market - 2007 to 2009 - Subprime Mortgage Crisis

In Feb’2009, the index (Nifty50) crashed due to the subprime mortgage crisis. The index fell by almost -35% from 4,296 levels to 2,763 levels. In the same period, the gold ETF went up by 69% from 8.82 levels to 14.96 levels. 

This is one example of gold’s overperformance (69% Up) when the stock market is in panic mode. The year 2008-09 saw one of its worst stock market crashes. FIIs, DIIs, domestic investors, etc, everyone was in the selling mode. The stock market was gripped with fear and pessimism. 

During such periods, gold investment performs the best. The same is shown in the above chart of gold price vs stock market.

The Year 2010 to 2013 (Volatile Market)

Gold Price Vs Stock Market - 2010 to 2013 - Volatile Market

Between the years 2010 and 2013, the stock market remained volatile. Nifty 50 kept bouncing during these four years. 

It started at 5,232 levels in Jan’10 and went up to 6,157 levels by Jan’11. It’s a jump of 17.7%. By the next twelve months, between Jan’11 and Dec’11, the Nifty fell to 4,544 levels. It was a fall of -26.2% in 12 months.

These two years of the roller coaster ride of Nifty50 were helping the GOLD ETFs to deliver better results. During this period, between Jan’10 and Dec’11, the gold ETF went up from 16.52 levels to 26.38 levels. It was a jump of 59.8% in two years. 

Between Jan’12 and Dec’12, the volatility of the stock market continued. The volatility makes the investors uncomfortable. These investors can be FIIs, DIIs, retail investors, etc. In such moments of uncertainty, they find solace by investing in safe havens like Gold

As a result, between Jan’12 and Aug’13, Gold ETFs price further appreciated from 26.38 levels to 29.92 levels (up by 13.4%). But at these levels even gold ETFs price became volatile. Perhaps the market thought that at these price levels the ETF was overvalued

When the stock market is expecting a bull run, the indices like the Nifty50 go up rapidly, gold underperforms or becomes volatile.

The Year 2014 (Stock Market Bullish)

Gold Price Vs Stock Market - 2014 - Before & After General Elections

The Year 2014 was an important year for India. In May’14, the results of the General Elections were declared. Manmohan Singh’s government was replaced by the Modi era. The perception of Modi was pro-growth hence, the stock market welcomed the move. 

There are two distinct parts to observe in the year 2014. 

  • Jan’14 to May’14 was the period before the results of the general elections. The mood of the nation showed that the change was inevitable. But still, there was uncertainty over the outcome. Hence, though the Nifty was cautiously moving up from 6,301 levels to 6,652 levels (up 5.5%), gold remained bullish. Gold ETF moved from 25.05 to 27.92, up by 11.45% in just 5 months. It clearly outperformed the Nifty. Why? Whenever uncertainty creeps into the market, either economically or politically, gold outperforms. This is a general behavior of gold. 
  • After May’14, New PM (Modi) was elected as the Prime Minister of India. With the new PM at the helm of affairs, the stock market felt more confident. The money parked in Gold was now redeemed and invested in the stock market. As a result, Nifty50 went up from 6,652 levels in May’14 to 8,232 levels in Dec’14 (up by 23.7%). In the same period, gold ETF fell from 27.92 to 24.48 levels (fall of -12.3%). 

The Year 2015 to 2016 to 2019 (A Rare Sync)

2015 to 2016 - Market & Gold Moving in Sync

It is a common belief that gold and equity have an inverse relationship. Though most of the time this assumption proves itself, there are exceptions. A similar case was observed in the years 2015 and 2016. 

Between Jan’15 and Feb’16, Nifty50 fell from 8,395 levels to 6,970 levels. It is a fall of -16.9%. In the same period, Gold ETF rose from 24.48 to 25.97 levels. It was a growth of 6.1%. Considering that the index has corrected by -16.9%, the gold performance was dismal. In fact, most of the time, gold was moving in sync with the Nifty (check the above price chart).

Between Feb’16 and Dec’16, the Nifty rose from 6,970 to 8,185 levels. It’s a growth of 17.4%. In the same period, gold ETF moved from 25.97 to 24.89 levels. It was a fall of -4.1%. Considering that the Index was up 17.4%, gold could have fallen more sharply. But it managed to be more resistant. 

A similar synced movement was observed between the years 2017 and 2019 as well. 

2017 to 2019 - Market & Gold Moving in Sync again

In this period, from Jan’17 to Dec’19, the Nifty rose from 8,179 to 12,168 levels. It’s an absolute growth of 48.7% in three years. In the same period, gold ETFs price rose from 25.1 to 34.41 levels. It was a growth of 37.1% in three years. Gold and the stock market are moving in synch, in short term, it is not a common phenomenon.

It can happen when equity investors are unsure. Either the investors are expecting a market correction or even worse, a crash. But as this correction/crash was not happening, both gold and equity were getting investments, and hence moved up together in sync. 

The Year 2020 (Covid Crash)

2020 - Covid Crash and Gold Price Movement

In the last five years, 2015 to 2019, the index was expected to correct, but it did not happen. Investors were anticipating a crash but those five years only went in waiting. In the year 2020, covid triggered the crash. The nifty fell from 12,100 to 7,600 levels (down by 37%). 

Though the index recovered by Mar’2020, the anxiety because of the COVID-19 infections continued till the start of the year 2021. Considering that it was an unprecedented event in history, the market remains extremely uncertain at least till Sep’2020. After that, some news related to vaccine manufacturing was heard. But till that time, the whole world was under lockdown. 

Uncertainty favors gold as an investment vehicle. Between Mar’2020 and Sep’2020, the gold ETF surged from 34.51 to 51.59 levels (up by 49.5%). Here is a clear example of gold and equity having an inverse relationship.

But after Sep’2020, the world became aware that vaccine is being developed and the concept of “work from home” is working. Though some people lost their jobs, many could adapt and continued earning during the lockdown. This was a phase when the stock market became even more bullish.

A massive amount of money was being invested in it. It was not a surprise to gold ETFs lost their shine during this period. The gold ETF price slipped from 51.59 to 45 levels (down by -12.8%). Again, we could see the gold price vs stock market inverse movements.

The Year 2022 (Inflation Worries)

2022 - Inflation, Stock Market, Gold Price

By the time it was the year 2022, the inflation worries became a reality. Between January and March, the stock market correction happened and the Nifty fell from 18,308 to 16,245 levels (down by -12.7%). It was again the time for the gold rush. The gold ETF price surged from 41.5 to 45.9 levels (up by 10.6%). 

In an inflationary environment, the market goes into its volatile mode. Frequent up and down brings uncertainty that again benefits gold. Between Mar’22 and July’22, the index is volatile. But the trend is mostly downwards. Currently, the Nifty50 index is at 16,058 levels. The gold ETF has managed to hold the 43.45 level in a volatile stock market around it. 

Generally, if the inflationary worries do not wade off, gold performs even better. Lower interest rates were allowed across the world to trigger spending, after covid. There was excess cash in circulation, hence inflation surge was unavoidable. Inflation weakens the currency, and in such times gold becomes the safe haven. 

Hence, I feel that in the coming years, gold as an investment vehicle will deliver good results. 


Coming back to the example of our boy. He bought into the Nifty50 index and Gold ETF in May’2007. Considering that he has held on to his investments till today, his average return (CAGR) would be as shown below. 

Nifty504,29616,0589.2% p.a.
Gold ETF8.8243.4511.2% p.a.

The gold performed better between the period May’07 and July’22. But it is not always that Gold beats the index. May’07 was a period when the Index was at its peak and gold price was at its bottom. 

Just to be fair with the stock market, let’s consider a slightly different time period for return calculation.

Nifty502,76316,05813.40% p.a.
Gold ETF14.9643.457.91% p.a.

What does these two calculation show? Depending on the timing of the investment, both the stock market and gold can beat each other. An index investor, in India, can easily make a 9-10% return. But by timing the market well, the returns can go up to 12-14%. The only rider is to invest and hold on to the asset for a very long time. Why? Because it substantially reduces the risk of the downside movement of the index. 

Similarly, long-term investing in gold can give a return between 7-12%. Here the risk of downside movement is less compared to the stock market. 

Our example boy invested Rs.25,000 in stocks and Rs.10,000 in Gold in the year 2007. Let’s calculate the present value of this investment:

DescriptionInvestmentReturn TimePresent Value
Nifty5025,00011% p.a.15 YrsRs,1,19,614
Gold ETF10,00010% p.a.15 YrsRs.41,772

Note: Individual stocks can give much higher returns than the averaged return of the index (like 11% p.a. of Nifty50). But in order to invest directly in stocks, the investor must train oneself to handle equity. How to do it? It can be done in two steps. First step is to know about the stock basics. The second step is to learn about the process of fundamental analysis.

Just because of the fact that gold and equity have an inverse relationship, the boy could do the following:

  • The boy could utilize this fact to diversify his portfolio.
  • He could grow his money in 15 years (see the above table).
  • A diversified portfolio can yield an average of 10%+ per annum returns.

Careful diversification of investment portfolios between stocks and gold is a good option. As there is a negative relationship between the gold price and the stock market, including both of them in the portfolio gives a balance.

Have a happy investing.

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Disclaimer: The information provided in my articles and products are for informational purposes only and should not be considered as financial or investment advice. Read more.

10 Responses

  1. Great article! Is it possible to look at the outcome if one were to rebalance the portfolio annually?
    I thought that was the point of having to assets with a low covariance.


  2. How can we explain the positive correlation between gold price rising and also stock market rising most of 2020?

  3. Gold and Stock market both are struggling due to strong dollar and growing yields.
    Gold as a safehaven ultimate test coming in my opinion.
    This coming low in gold might be the cheapest gold could get in decades.
    Indian government reduced customs on gold which has caused lack lustr interest in soverign gold scheme.
    e-gold etfs seem to be the way but is there a possibility of liquidation of the private players and better to go with the GOI?

  4. Nice Article.

    I think one can keep both in portfolio E-Gold & Stocks as per Age & Risk Profile.
    When there is recession, Sell Gold & invest in Stock.
    When there is overvaluation of stocks, Sell Stocks & invest in Gold.
    So there is both way profit.

  5. Dear Mani (in my native Tamil Language “Mani” means “Pearl”. I was not aware that your full name is Manish Choudhary, and you are not a Tamilian. Hence wanted to let you know the relationship between your short name Mani and Pearl in my native Tamil language).

    Coming back, Dear Mani – You are a Genius and an unselfish one in that. Wisdom is the Greatest Wealth and you are giving your Wisdom for free! That shows how humble you are. Great people like Buddha, Jesus, Lincoln, Kalam, Mother Theresa were all very humble. You join that list in your own way and in your own field. If someone reads your articles (say 10% of your articles), he can become the next Warren Buffet. Such is your Genius. Thank You Mani. You are really a “Pearl”!!

    1. Thank you Ramesh for liking my work and expressing it so passionately. Your words are pure “Pearl”. 🙂

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