Inverse relationship between equity and gold
Those who had invested only in equities over the past few years have probably learnt their lesson the hard way. But investors who were well-diversified right from the beginning are well aware that when equity fails to deliver, other asset classes can come to the rescue. And gold is the most prominent among these asset classes.
It is an oft-stated fact that equity and gold do not go hand in hand. Hence, when equity tends to go up, gold comes down and vice-versa. And this gives investors enough opportunity to gain from either asset class, especially when the other is making a loss.
The solid old argument that when equity goes down gold comes up - the article goes on :
While the inverse relationship between these two asset classes has been in existence for long, it is not just a matter of theory. An ETIG analysis of the monthly returns generated by these two categories since January ’07 also indicates the same. Though the period under consideration is not too long, it encapsulates one year each of a bull and bear run.
During April-October ’07, when the equity market was in the midst of a bull run, gold managed to generate only decent returns after a few pitfalls during the initial months of the concerned period. However, there has been a reversal in trend this year due to the crash in the equity market. Each dip in the market has been compensated by an upswing in gold prices.
