In comparison to other commodities, there is no significant correlation between returns on gold and changes in macroeconomic variables such as gross domestic product, inflation and interest rates. Therefore, gold returns are less correlated with the returns on equity and bond indices than other commodities. As a result, gold as an investment asset fulfills two related fundamental functions, a safe haven in times of financial volatility and a risk minimization tool.
A historical analysis of gold prices compared to the world’s equity market reveals a clear inverse relationship between returns on equity markets and the gold price. Generally, as the equity market falls, gold prices rise. There is also a solid correlation between geopolitical and financial market instability and rising gold prices, as demonstrated in the lead-up to the Iraq war.
The current market is strong and there are some indicators that predict even a higher market. But like the stock and bond markets, there will be an adjustment. I wish I was a clairvoyant and had “coraggio” to jump in and out at the appropriate time!
Cos Altobelli is a third generation jeweler and president of Altobelli Jewelers in Burbank, previously located in North Hollywood for 60 years. His specialty is appraising for all functions and acting as an expert witness. He holds a graduate degree from the Gemological Institute of America and the title of Certified Gemologist Appraiser from the American Gem Society, is the author of three appraisal books and has appeared on “Prime Time Live” several times. Mr. Altobelli can be reached at (818) 763-5151.