Gold Analysis 16-Mar-21
The asset fails as a hedging tool and is positively correlated with stocks, which creates problems for investors who want to protect themselves from falling stock markets. Gold is up about 0.2% with the S&P 500 moving up one percentage point. From the point of view of building an investment portfolio, this means that gold is a less effective hedging tool than before.
The effectiveness of the precious metal as an insurance against inflation has also decreased, especially in the recent period. Inflation expectations have risen over the past few months, while gold has shown a weak correlation with daily and weekly movements. Over the past few months, the asset price has fallen by about 5%, despite expectations that inflation will rise to the highest level since 2008, according to a key indicator of the bond market. Gold declined due to rising bond yields, and this trend is likely to continue to be a problem as the indicator continues to grow. The precious metal should still be considered as a dollar hedging tool, because there is a strong negative relationship with the US currency. The collapse of the dollar may spur the growth of demand for gold, but so far the opposite trend is observed.