The Bank of England expects stock markets around the world to fall as share prices do not reflect the many risks facing the global economy.1
But what does this mean for gold prices?
Rick Kanda, Managing Director at The Gold Bullion Company, has shared his expert insight on what stock market fluctuations could mean for gold.
“I think it’s usual to assume that when stocks fall, gold prices rise, but in reality, it’s not quite as straightforward. In fact, we usually see a two-phase reaction from gold.
Initially, gold prices may fall due to panic selling and liquidity needs. For example, this was the case when the stock market fell during the early stages of COVID-19.
However, in the short to medium term, gold has historically risen as falling stocks signal economic fear, recession risk, and financial instability, which understandably drives investors to safe-haven assets.
But having said that, gold takes the big picture into account and doesn’t just react to falling stock markets; more importantly, it reacts to ‘why’ they’re falling. Currently, global stock markets are experiencing volatility due to rising oil prices and geopolitical tensions, and uncertainty around where interest rates are heading. As well, there are signs of a slowing economy, which just adds to the market uncertainty.
This puts gold in a tricky position because gold usually rises when the economy slows and interest rates are expected to fall, but when interest rates remain higher for longer gold usually falls or at least remains weak and under pressure.
In short, gold is currently hovering around $4,6002 per ounce, slightly down from April’s high of $4,8002, but still considerably higher year on year. The slight pullback from recent highs is therefore not unexpected, with continued support from safe-haven demand, but, all in all, it’s more of a “wait and see” moment for gold right now.