Diversification that works

20 January, 2022

Effective diversifiers are sometimes hard to find. Many assets become increasingly correlated as market uncertainty rises and volatility is more pronounced, driven in part by risk-on/risk-off investment decisions. As a result, many so-called diversifiers fail to protect portfolios when investors need them most. 

Gold is different in that its negative correlation to equities and other risk assets increases as these assets sell off (Chart 7). The GFC is a case in point. Equities and other risk assets tumbled in value, as did hedge funds, real estate, and most commodities, which were long deemed portfolio diversifiers. Gold, by contrast, held its own and increased in price, rising 21% in US dollars from December 2007 to February 2009.1 And in the most recent sharp equity market pullbacks of 2018 and 2020, gold performance remained positive.2

This robust performance is not surprising. With few exceptions, gold has been particularly effective during times of systemic risk, delivering positive returns and reducing overall portfolio losses (Chart 8). Importantly too, gold allows investors to meet liabilities when less liquid assets in their portfolio are difficult to sell, or mispriced. 

Gold has consistently benefited from ‘flight-to-quality’ inflows during periods of heightened risk.

 

Chart 7: Gold has been more negatively correlated with equities in extreme market selloffs than commodities and US treasuries

Gold has been more negatively correlated with equities in extreme market selloffs than commodities and US treasuries

Correlation of US equities versus gold, commodities and US treasuries in various environments of US equity market performance since 1973*

Gold has been more negatively correlated with equities in extreme market selloffs than commodities and US treasuries
Correlation of US equities versus gold, commodities and US treasuries in various environments of US equity market performance since 1973*
*As of 31 December 2021. Correlations based on weekly returns in US dollars for ‘US equities’: S&P 500 Index; ‘commodities’: Bloomberg Commodity Index; ‘US treasuries’: Bloomberg Barclays US Treasury Index and ‘gold’ LBMA Gold Price PM since January 1973 due to US treasury availability of data. The top bar corresponds to the unconditional correlation over the full period. The middle bar corresponds to the respective correlations when the S&P 500 weekly return falls by more than two standard deviations (or ‘σ’), while the bottom bar corresponds to the respective correlation when the S&P 500 weekly return falls by more than three standard deviations. The standard deviation for the S&P 500 is calculated using weekly returns over the full period. On Goldhub.com see: Gold correlation. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2021. Correlations based on weekly returns in US dollars for ‘US equities’: S&P 500 Index; ‘commodities’: Bloomberg Commodity Index; ‘US treasuries’: Bloomberg Barclays US Treasury Index and ‘gold’ LBMA Gold Price PM since January 1973 due to US treasury availability of data. 

The top bar corresponds to the unconditional correlation over the full period. The middle bar corresponds to the respective correlations when the S&P 500 weekly return falls by more than two standard deviations (or ‘σ’), while the bottom bar corresponds to the respective correlation when the S&P 500 weekly return falls by more than three standard deviations. The standard deviation for the S&P 500 is calculated using weekly returns over the full period. 

On Goldhub.com see: Gold correlation.

 

Chart 7: Gold has been more negatively correlated with equities in extreme market selloffs than commodities

Gold has been more negatively correlated with equities in extreme market selloffs than commodities

Correlation between gold, commodities and UK equity returns in various environments of equity market performance since 1973*

Gold has been more negatively correlated with equities in extreme market selloffs than commodities
Correlation between gold, commodities and UK equity returns in various environments of equity market performance since 1973*
*As of 31 December 2021. Correlations based on weekly returns in pound sterling for ‘UK equities’: FTSE 100 Index; ‘commodities’: Bloomberg Commodity Index; and ‘gold’ LBMA Gold Price PM since January 1973 due to availability of data. The top bar corresponds to the unconditional correlation over the full period. The middle bar corresponds to the respective correlations when the FTSE 100 weekly return falls by more than two standard deviations (or ‘σ’), while the bottom bar corresponds to the respective correlation when the FTSE 100 weekly return falls by more than three standard deviations. The standard deviation for the FTSE 100 is calculated using weekly returns over the full period. Source: On Goldhub.com: Gold correlation. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2021. Correlations based on weekly returns in pound sterling for ‘UK equities’: FTSE 100 Index; ‘commodities’: Bloomberg Commodity Index; and ‘gold’ LBMA Gold Price PM since January 1973 due to availability of data. 

The top bar corresponds to the unconditional correlation over the full period. The middle bar corresponds to the respective correlations when the FTSE 100  weekly return falls by more than two standard deviations (or ‘σ’), while the bottom bar corresponds to the respective correlation when the FTSE 100 weekly return falls by more than three standard deviations. The standard deviation for the FTSE 100 is calculated using weekly returns over the full period.

Source: On Goldhub.com: Gold correlation.

 

Chart 7: Gold has been more negatively correlated with equities in extreme market selloffs than commodities

Gold has been more negatively correlated with equities in extreme market selloffs than commodities

Correlation between gold, commodities and European equity returns in various environments of equity market performance since 1973*

Gold has been more negatively correlated with equities in extreme market selloffs than commodities
Correlation between gold, commodities and European equity returns in various environments of equity market performance since 1973*
*As of 31 December 2021. Correlations based on weekly returns in euros for ‘European equities’: MSCI Europe Index; ‘commodities’: Bloomberg Commodity Index; and ‘gold’ LBMA Gold Price PM since January 1973 due to availability of data. The top bar corresponds to the unconditional correlation over the full period. The middle bar corresponds to the respective correlations when the MSCI Europe weekly return falls by more than two standard deviations (or ‘σ’), while the bottom bar corresponds to the respective correlation when the MSCI Europe weekly return falls by more than three standard deviations. The standard deviation for the MSCI Europe is calculated using weekly returns over the full period. Source: On Goldhub.com: Gold correlation. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2021. Correlations based on weekly returns in euros for ‘European equities’: MSCI Europe Index; ‘commodities’: Bloomberg Commodity Index; and ‘gold’ LBMA Gold Price PM since January 1973 due to availability of data. 

The top bar corresponds to the unconditional correlation over the full period. The middle bar corresponds to the respective correlations when the MSCI Europe weekly return falls by more than two standard deviations (or ‘σ’), while the bottom bar corresponds to the respective correlation when the MSCI Europe weekly return falls by more than three standard deviations. The standard deviation for the MSCI Europe is calculated using weekly returns over the full period.

Source: On Goldhub.com: Gold correlation.

 

Chart 7: Gold has been more negatively correlated with equities in extreme market selloffs than commodities

Gold has been more negatively correlated with equities in extreme market selloffs than commodities

Correlation between gold, commodities and Japanese equity returns in various environments of equity market performance since 1971*

Gold has been more negatively correlated with equities in extreme market selloffs than commodities
Correlation between gold, commodities and Japanese equity returns in various environments of equity market performance since 1971*
*As of 31 December 2021. Correlations based on weekly returns in yen for ‘Japan equities’: TOPIX Index; ‘commodities’: Bloomberg Commodity Index; and ‘gold’ LBMA Gold Price PM since January 1973 due to availability of data. The top bar corresponds to the unconditional correlation over the full period. The middle bar corresponds to the respective correlations when the TOPIX weekly return falls by more than two standard deviations (or ‘σ’), while the bottom bar corresponds to the respective correlation when the TOPIX weekly return falls by more than three standard deviations. The standard deviation for the TOPIX is calculated using weekly returns over the full period. Source: On Goldhub.com: Gold correlation. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2021. Correlations based on weekly returns in yen for ‘Japan equities’: TOPIX Index; ‘commodities’: Bloomberg Commodity Index; and ‘gold’ LBMA Gold Price PM since January 1973 due to availability of data. 

The top bar corresponds to the unconditional correlation over the full period. The middle bar corresponds to the respective correlations when the TOPIX weekly return falls by more than two standard deviations (or ‘σ’), while the bottom bar corresponds to the respective correlation when the TOPIX weekly return falls by more than three standard deviations. The standard deviation for the TOPIX is calculated using weekly returns over the full period.

Source: On Goldhub.com: Gold correlation.

 

Chart 7: Gold has been more negatively correlated with equities in extreme market selloffs than commodities

Gold has been more negatively correlated with equities in extreme market selloffs than commodities

Correlation between gold, MSCI World Index, MSCI AC ASEAN Index equity returns in various global equity environments since 2000*

Gold has been more negatively correlated with equities in extreme market selloffs than commodities
Correlation between gold, MSCI World Index, MSCI AC ASEAN Index equity returns in various global equity environments since 2000*
*As of 31 December 2021. Correlations computed using weekly returns in US dollars based on the MSCI World Index, MSCI AC ASEAN Index, and the LBMA Gold Price PM since December 2000. The middle bar corresponds to the unconditional correlation over the full period. The bottom bar corresponds to the correlation conditional on the MSCI World Index weekly return increasing by more than two standard deviations (or ‘σ’), while the top bar corresponds to the MSCI World Index weekly return decreasing by more than two standard deviations. The standard deviation is based on the same weekly returns over the full period. Source: On Goldhub.com: Gold correlation. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2021. Correlations computed using weekly returns in US dollars based on the MSCI World Index, MSCI AC ASEAN Index, and the LBMA Gold Price PM since December 2000. 

The middle bar corresponds to the unconditional correlation over the full period. The bottom bar corresponds to the correlation conditional on the MSCI World Index weekly return increasing by more than two standard deviations (or ‘σ’), while the top bar corresponds to the MSCI World Index weekly return decreasing by more than two standard deviations. The standard deviation is based on the same weekly returns over the full period.

Source: On Goldhub.com: Gold correlation.

 

Chart 7: Gold has been more negatively correlated with equities in extreme market selloffs than commodities

Gold has been more negatively correlated with equities in extreme market selloffs than commodities

Correlation between gold, treasuries, and commodities in various environments of equity performance since 2006*

Gold has been more negatively correlated with equities in extreme market selloffs than commodities
Correlation between gold, treasuries, and commodities in various environments of equity performance since 2006*
*As of 31 December 2021. Correlations based on weekly returns in RMB for 'Chinese equities': Shanghai Stock Exchange Composite Index; ‘commodities’: CSI Commodity Index; ‘Chinese treasuries’: Bloomberg Barclays China Treasury Index and ‘gold’ Au9999 since December 2006 due to availability of data. The top bar corresponds to the correlation conditional on the Shanghai Stock Exchange Composite Index weekly return rising by more than one standard deviation (or ‘σ’) over the full period. The middle bar corresponds to the correlation conditional on Shanghai Stock Exchange Composite Index weekly return moving between +1 σ and -1 σ, while the bottom bar corresponds to the Shanghai Stock Exchange Composite Index weekly return decreasing by more than one standard deviation. The standard deviation is based on the same weekly returns over the full period. Source: On Goldhub.com: Gold correlation. Sources: Bloomberg, China Securities Co., Shanghai Gold Exchange, Shanghai Stock Exchange, World Gold Council

Sources: Bloomberg, China Securities Co., Shanghai Gold Exchange, Shanghai Stock Exchange, World Gold Council; Disclaimer

*As of 31 December 2021. Correlations based on weekly returns in RMB for 'Chinese equities': Shanghai Stock Exchange Composite Index; ‘commodities’: CSI Commodity Index; ‘Chinese treasuries’: Bloomberg Barclays China Treasury Index and ‘gold’ Au9999 since December 2006 due to availability of data. 

The top bar corresponds to the correlation conditional on the Shanghai Stock Exchange Composite Index weekly return rising by more than one standard deviation (or ‘σ’) over the full period. The middle bar corresponds to the correlation conditional on Shanghai Stock Exchange Composite Index weekly return moving between +1 σ and -1 σ, while the bottom bar corresponds to the Shanghai Stock Exchange Composite Index weekly return decreasing by more than one standard deviation. The standard deviation is based on the same weekly returns over the full period.

Source: On Goldhub.com: Gold correlation.

 

Chart 7: Gold has been more negatively correlated with equities in extreme market selloffs than commodities

Gold has been more negatively correlated with equities in extreme market selloffs than commodities

Correlation between gold and Indian equity returns in various environments of equity market performance since 1984*

Gold has been more negatively correlated with equities in extreme market selloffs than commodities
Correlation between gold and Indian equity returns in various environments of equity market performance since 1984*
*As of 31 December 2021. Correlations based on weekly returns in rupees for ‘Indian equities’: BSE Sensex Index; ‘commodities’: Bloomberg Commodity Index; and ‘gold’ LBMA Gold Price PM since January 1984 due to availability of data. The top bar corresponds to the unconditional correlation over the full period. The middle bar corresponds to the respective correlations when the BSE Sensex weekly return falls by more than two standard deviations (or ‘σ’), while the bottom bar corresponds to the respective correlation when the BSE Sensex weekly return falls by more than three standard deviations. The standard deviation for the BSE Sensex is calculated using weekly returns over the full period. Source: On Goldhub.com: Gold correlation. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2021. Correlations based on weekly returns in rupees for ‘Indian equities’: BSE Sensex Index; ‘commodities’: Bloomberg Commodity Index; and ‘gold’ LBMA Gold Price PM since January 1984 due to availability of data. 

The top bar corresponds to the unconditional correlation over the full period. The middle bar corresponds to the respective correlations when the BSE Sensex weekly return falls by more than two standard deviations (or ‘σ’), while the bottom bar corresponds to the respective correlation when the BSE Sensex weekly return falls by more than three standard deviations. The standard deviation for the BSE Sensex is calculated using weekly returns over the full period.

Source: On Goldhub.com: Gold correlation.

 

Chart 7: Gold has been more negatively correlated with equities in extreme market selloffs than commodities

Gold has been more negatively correlated with equities in extreme market selloffs than commodities

Correlation between gold, commodities and treasuries, and Australian equity returns in various environments of equity market performance since 2000*

Gold has been more negatively correlated with equities in extreme market selloffs than commodities
Correlation between gold, commodities and treasuries, and Australian equity returns in various environments of equity market performance since 2000*
*As of 31 December 2021. Correlations based on daily returns in Australian dollars for ‘Australian equities’: S&P/ASX200 Index; ‘commodities’: Bloomberg Commodity Index; and ‘gold’ LBMA Gold Price PM since December 2000 due to availability of data. The top bar corresponds to the unconditional correlation over the full period. The middle bar corresponds to the respective correlations when the ASX200 daily return falls by more than two standard deviations (or ‘σ’), while the bottom bar corresponds to the respective correlation when the ASX200 daily return falls by more than three standard deviations. The standard deviation for the ASX200 is calculated using daily returns over the full period. Source: On Goldhub.com: Gold correlation. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2021. Correlations based on daily returns in Australian dollars for ‘Australian equities’: S&P/ASX200 Index; ‘commodities’: Bloomberg Commodity Index; and ‘gold’ LBMA Gold Price PM since December 2000 due to availability of data. 

The top bar corresponds to the unconditional correlation over the full period. The middle bar corresponds to the respective correlations when the ASX200  daily return falls by more than two standard deviations (or ‘σ’), while the bottom bar corresponds to the respective correlation when the ASX200 daily return falls by more than three standard deviations. The standard deviation for the ASX200 is calculated using daily returns over the full period.

Source: On Goldhub.com: Gold correlation.

But gold’s correlation does not just work for investors during periods of turmoil. It can also deliver positive correlation with equities and other risk assets in positive markets, making gold a well-rounded efficient hedge (Chart 9), (see Gold: an efficient hedge).

This dual benefit arises from gold’s dual nature: as both an investment and a consumer good (Chart 18). As such, the long-term performance of gold is supported by income growth. Our analysis bears this out, showing that when equities rally strongly, their correlation to gold can increase. This is driven by a wealth-effect supporting gold consumer demand, as well as demand from investors seeking protection against higher inflation expectations.

Gold behaves – and is used – as a safe-haven in periods of systemic risk… 

 

Chart 8: The gold price tends to increase in periods of systemic risk

The gold price tends to increase in periods of systemic risk

US equities, treasuries and gold versus the VIX index*

The gold price tends to increase in periods of systemic risk
US equities, treasuries and gold versus the VIX index*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council *As of 31 December 2020. Return computations in US dollars for ‘US equities’: S&P 500 Index; ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM; and ‘VIX’: Cboe VIX Index. The VIX is available only after January 1990. For events occurring prior to that date annualised 30-day S&P 500 volatility is used as a proxy. Dates used: Black Monday: 9/1987 - 11/1987; LTCM: 8/1998; Dot-com: 3/2000 - 3/2001; September 11: 9/2001; 2002 recession: 3/2002 - 7/2002; global financial crisis (GFC): 10/2007 - 2/2009; Sovereign debt crisis I: 1/2010 - 6/2010; Sovereign debt crisis II: 2/2011 - 10/2011; Brexit: 23/6/2016 – 27/6/ 2016; 2018 pullback: 10/2018 - 12/2018; 2020 pullback: 31/1/2020 – 31/3/2020.

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2020. Return computations in US dollars for ‘US equities’: S&P 500 Index; ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM; and ‘VIX’: Cboe VIX Index. The VIX is available only after January 1990. For events occurring prior to that date annualised 30-day S&P 500 volatility is used as a proxy. Dates used: Black Monday: 9/1987 - 11/1987; LTCM: 8/1998; Dot-com: 3/2000 - 3/2001; September 11: 9/2001; 2002 recession: 3/2002 - 7/2002; global financial crisis (GFC): 10/2007 - 2/2009; Sovereign debt crisis I: 1/2010 - 6/2010; Sovereign debt crisis II: 2/2011 - 10/2011; Brexit: 23/6/2016 – 27/6/ 2016; 2018 pullback: 10/2018 - 12/2018; 2020 pullback: 31/1/2020 – 31/3/2020.

 

Chart 8: The gold price tends to increase in periods of systemic risk

The gold price tends to increase in periods of systemic risk

US equities, treasuries and gold versus the VIX index*

The gold price tends to increase in periods of systemic risk
US equities, treasuries and gold versus the VIX index*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council *As of 31 December 2020. Return computations in US dollars for ‘US equities’: S&P 500 Index; ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM; and ‘VIX’: Cboe VIX Index. The VIX is available only after January 1990. For events occurring prior to that date annualised 30-day S&P 500 volatility is used as a proxy. Dates used: Black Monday: 9/1987 - 11/1987; LTCM: 8/1998; Dot-com: 3/2000 - 3/2001; September 11: 9/2001; 2002 recession: 3/2002 - 7/2002; global financial crisis (GFC): 10/2007 - 2/2009; Sovereign debt crisis I: 1/2010 - 6/2010; Sovereign debt crisis II: 2/2011 - 10/2011; Brexit: 23/6/2016 – 27/6/ 2016; 2018 pullback: 10/2018 - 12/2018; 2020 pullback: 31/1/2020 – 31/3/2020.

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2020. Return computations in US dollars for ‘US equities’: S&P 500 Index; ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM; and ‘VIX’: Cboe VIX Index. The VIX is available only after January 1990. For events occurring prior to that date annualised 30-day S&P 500 volatility is used as a proxy. Dates used: Black Monday: 9/1987 - 11/1987; LTCM: 8/1998; Dot-com: 3/2000 - 3/2001; September 11: 9/2001; 2002 recession: 3/2002 - 7/2002; global financial crisis (GFC): 10/2007 - 2/2009; Sovereign debt crisis I: 1/2010 - 6/2010; Sovereign debt crisis II: 2/2011 - 10/2011; Brexit: 23/6/2016 – 27/6/ 2016; 2018 pullback: 10/2018 - 12/2018; 2020 pullback: 31/1/2020 – 31/3/2020.

 

Chart 8: The gold price tends to increase in periods of systemic risk

The gold price tends to increase in periods of systemic risk

US equities, treasuries and gold versus the VIX index*

The gold price tends to increase in periods of systemic risk
US equities, treasuries and gold versus the VIX index*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council *As of 31 December 2020. Return computations in US dollars for ‘US equities’: S&P 500 Index; ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM; and ‘VIX’: Cboe VIX Index. The VIX is available only after January 1990. For events occurring prior to that date annualised 30-day S&P 500 volatility is used as a proxy. Dates used: Black Monday: 9/1987 - 11/1987; LTCM: 8/1998; Dot-com: 3/2000 - 3/2001; September 11: 9/2001; 2002 recession: 3/2002 - 7/2002; global financial crisis (GFC): 10/2007 - 2/2009; Sovereign debt crisis I: 1/2010 - 6/2010; Sovereign debt crisis II: 2/2011 - 10/2011; Brexit: 23/6/2016 – 27/6/ 2016; 2018 pullback: 10/2018 - 12/2018; 2020 pullback: 31/1/2020 – 31/3/2020.

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2020. Return computations in US dollars for ‘US equities’: S&P 500 Index; ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM; and ‘VIX’: Cboe VIX Index. The VIX is available only after January 1990. For events occurring prior to that date annualised 30-day S&P 500 volatility is used as a proxy. Dates used: Black Monday: 9/1987 - 11/1987; LTCM: 8/1998; Dot-com: 3/2000 - 3/2001; September 11: 9/2001; 2002 recession: 3/2002 - 7/2002; global financial crisis (GFC): 10/2007 - 2/2009; Sovereign debt crisis I: 1/2010 - 6/2010; Sovereign debt crisis II: 2/2011 - 10/2011; Brexit: 23/6/2016 – 27/6/ 2016; 2018 pullback: 10/2018 - 12/2018; 2020 pullback: 31/1/2020 – 31/3/2020.

 

Chart 8: The gold price tends to increase in periods of systemic risk

The gold price tends to increase in periods of systemic risk

US equities, treasuries and gold versus the VIX index*

The gold price tends to increase in periods of systemic risk
US equities, treasuries and gold versus the VIX index*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council *As of 31 December 2020. Return computations in US dollars for ‘US equities’: S&P 500 Index; ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM; and ‘VIX’: Cboe VIX Index. The VIX is available only after January 1990. For events occurring prior to that date annualised 30-day S&P 500 volatility is used as a proxy. Dates used: Black Monday: 9/1987 - 11/1987; LTCM: 8/1998; Dot-com: 3/2000 - 3/2001; September 11: 9/2001; 2002 recession: 3/2002 - 7/2002; global financial crisis (GFC): 10/2007 - 2/2009; Sovereign debt crisis I: 1/2010 - 6/2010; Sovereign debt crisis II: 2/2011 - 10/2011; Brexit: 23/6/2016 – 27/6/ 2016; 2018 pullback: 10/2018 - 12/2018; 2020 pullback: 31/1/2020 – 31/3/2020.

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2020. Return computations in US dollars for ‘US equities’: S&P 500 Index; ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM; and ‘VIX’: Cboe VIX Index. The VIX is available only after January 1990. For events occurring prior to that date annualised 30-day S&P 500 volatility is used as a proxy. Dates used: Black Monday: 9/1987 - 11/1987; LTCM: 8/1998; Dot-com: 3/2000 - 3/2001; September 11: 9/2001; 2002 recession: 3/2002 - 7/2002; global financial crisis (GFC): 10/2007 - 2/2009; Sovereign debt crisis I: 1/2010 - 6/2010; Sovereign debt crisis II: 2/2011 - 10/2011; Brexit: 23/6/2016 – 27/6/ 2016; 2018 pullback: 10/2018 - 12/2018; 2020 pullback: 31/1/2020 – 31/3/2020.

 

Chart 8: The gold price tends to increase in periods of systemic risk

The gold price tends to increase in periods of systemic risk

ASEAN equities and gold versus the VIX index*

The gold price tends to increase in periods of systemic risk
ASEAN equities and gold versus the VIX index*
* Dates used: September 11: 9/2001; Great recession: 12/2007–3/2009; China Deleveraging: 04/2015–01/2016; Sovereign debt crisis: 08/2011–10/2011; COVID-19 crisis: 02/2020 - 04/2020 Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

* Dates used: September 11: 9/2001; Great recession: 12/2007–3/2009; China Deleveraging: 04/2015–01/2016; Sovereign debt crisis: 08/2011–10/2011; COVID-19 crisis: 02/2020 - 04/2020

 

Chart 8: The gold price tends to increase in periods of systemic risk

The gold price tends to increase in periods of systemic risk

Chinese equities, gold and bonds*

The gold price tends to increase in periods of systemic risk
Chinese equities, gold and bonds*
*Date used: SARS: 11/2002–7/2003; Policy adjustment pullback: 4/2004–12/2004 Great Recession: 10/2007–2/2009; Sovereign debt crisis I: 1/2010–6/2010; Sovereign debt crisis II: 2/2011–10/2011; 2015 deleverage: 6/2015–9/2015; 2018 pullback: 10/2018-12/2018; 2020 pullback: 1/2020-3/2020. Calculation based on Shanghai stock exchange composite index, Au9999 and CSI China bond index due to data availability. **For more information about the SARS, please visit: www.who.int/health-topics/severe-acute-respiratory-syndrome#tab=tab_1 Sources: Bloomberg, China Securities Co., Shanghai Gold Exchange, Shanghai Stock Exchange, World Gold Council

Sources: Bloomberg, China Securities Co., Shanghai Gold Exchange, Shanghai Stock Exchange, World Gold Council; Disclaimer

*Date used: SARS: 11/2002–7/2003; Policy adjustment pullback: 4/2004–12/2004 Great Recession: 10/2007–2/2009; Sovereign debt crisis I: 1/2010–6/2010; Sovereign debt crisis II: 2/2011–10/2011; 2015 deleverage: 6/2015–9/2015; 2018 pullback: 10/2018-12/2018; 2020 pullback: 1/2020-3/2020. Calculation based on Shanghai stock exchange composite index, Au9999 and CSI China bond index due to data availability. **For more information about the SARS, please visit: www.who.int/health-topics/severe-acute-respiratory-syndrome#tab=tab_1

 

Chart 8: The gold price tends to increase in periods of systemic risk

The gold price tends to increase in periods of systemic risk

US equities, treasuries and gold versus the VIX index*

The gold price tends to increase in periods of systemic risk
US equities, treasuries and gold versus the VIX index*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council *As of 31 December 2020. Return computations in US dollars for ‘US equities’: S&P 500 Index; ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM; and ‘VIX’: Cboe VIX Index. The VIX is available only after January 1990. For events occurring prior to that date annualised 30-day S&P 500 volatility is used as a proxy. Dates used: Black Monday: 9/1987 - 11/1987; LTCM: 8/1998; Dot-com: 3/2000 - 3/2001; September 11: 9/2001; 2002 recession: 3/2002 - 7/2002; global financial crisis (GFC): 10/2007 - 2/2009; Sovereign debt crisis I: 1/2010 - 6/2010; Sovereign debt crisis II: 2/2011 - 10/2011; Brexit: 23/6/2016 – 27/6/ 2016; 2018 pullback: 10/2018 - 12/2018; 2020 pullback: 31/1/2020 – 31/3/2020.

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2020. Return computations in US dollars for ‘US equities’: S&P 500 Index; ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM; and ‘VIX’: Cboe VIX Index. The VIX is available only after January 1990. For events occurring prior to that date annualised 30-day S&P 500 volatility is used as a proxy. Dates used: Black Monday: 9/1987 - 11/1987; LTCM: 8/1998; Dot-com: 3/2000 - 3/2001; September 11: 9/2001; 2002 recession: 3/2002 - 7/2002; global financial crisis (GFC): 10/2007 - 2/2009; Sovereign debt crisis I: 1/2010 - 6/2010; Sovereign debt crisis II: 2/2011 - 10/2011; Brexit: 23/6/2016 – 27/6/ 2016; 2018 pullback: 10/2018 - 12/2018; 2020 pullback: 31/1/2020 – 31/3/2020.

 

Chart 8: The gold price tends to increase in periods of systemic risk

The gold price tends to increase in periods of systemic risk

Australian equities, bonds and gold versus realised volatility*

The gold price tends to increase in periods of systemic risk
Australian equities, bonds and gold versus realised volatility*
Dates used: LTCM: 7/1998-10/1998; 2002 recession: 2/2002-3/2003; Global financial crisis:11/2007-3/2009; Sovereign debt crisis I: 4/2010-7/2010; Sovereign debt crisis II: 2/2001-10/2011; 2015 China deleveraging: 6/2015-2/2016; 2018 pullback: 8/2018-12/2018; 2020 pullback: 2/2020-3/2020 Sources: Bloomberg, World Gold Council

Sources: Bloomberg, World Gold Council; Disclaimer

Dates used: LTCM: 7/1998-10/1998; 2002 recession: 2/2002-3/2003; Global financial crisis:11/2007-3/2009; Sovereign debt crisis I: 4/2010-7/2010; Sovereign debt crisis II: 2/2001-10/2011; 2015 China deleveraging: 6/2015-2/2016; 2018 pullback: 8/2018-12/2018; 2020 pullback: 2/2020-3/2020

Asset Performance during market
sell-off*
Performance during market
recovery*
  Average Median Average Median
Gold 10% 7% 25% 6%
US treasuries 11% 10% 13% 5%

*Average and median returns using data and time horizons as in Charts 8 and 9.

Source: Bloomberg, ICE Benchmark Administration, World Gold Council

…but also performs well in market recoveries.

 

Chart 9: Gold prices perform well following the period after a systemic selloff and its subsequent recovery

Gold prices perform well following the period after a systemic selloff and its subsequent recovery

Performance of gold and treasuries from the market trough (bottom) to the market recovery point (equity market levels before the systemic selloff)*

Gold prices perform well following the period after a systemic selloff and its subsequent recovery
Performance of gold and treasuries from the market trough (bottom) to the market recovery point (equity market levels before the systemic selloff)*
* As of 31 December 2020. Return computations in US dollars for ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM. Dates used are based off the end dates of Chart 8. Post Black Monday: 11/1987 - 6/1989; Post LTCM: 8/1998 - 11/1998; Post dot-com: 3/2001 – 5/2007; Post 9/11: 9/2001 – 11/2001; Post 2002 recession: 7/2002 – 11/2004; Post GFC: 2/2009 - 1/2013; Post sovereign debt crisis I: 6/2010 - 10/2010; Post sovereign debt crisis II: 10/2011 – 2/2012; Post Brexit: 6/2016 - 7/2016; Post 2018 pullback: 12/2018 – 6/2019; Post 2020 pullback: 3/2020 – 7/2020. **The bar is truncated for the Dot-com bubble recovery due to its extreme differential between others and visibility. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

* As of 31 December 2020. Return computations in US dollars for ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM. Dates used are based off the end dates of Chart 8. Post Black Monday: 11/1987 - 6/1989; Post LTCM: 8/1998 - 11/1998; Post dot-com: 3/2001 – 5/2007; Post 9/11: 9/2001 – 11/2001; Post 2002 recession: 7/2002 – 11/2004; Post GFC: 2/2009 - 1/2013; Post sovereign debt crisis I: 6/2010 - 10/2010; Post sovereign debt crisis II: 10/2011 – 2/2012; Post Brexit: 6/2016 - 7/2016; Post 2018 pullback: 12/2018 – 6/2019; Post 2020 pullback: 3/2020 – 7/2020. **The bar is truncated for the Dot-com bubble recovery due to its extreme differential between others and visibility.

 

Chart 9: Gold prices perform well following the period after a systemic selloff and its subsequent recovery

Gold prices perform well following the period after a systemic selloff and its subsequent recovery

Performance of gold and treasuries from the market trough (bottom) to the market recovery point (equity market levels before the systemic selloff)*

Gold prices perform well following the period after a systemic selloff and its subsequent recovery
Performance of gold and treasuries from the market trough (bottom) to the market recovery point (equity market levels before the systemic selloff)*
* As of 31 December 2020. Return computations in US dollars for ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM. Dates used are based off the end dates of Chart 8. Post Black Monday: 11/1987 - 6/1989; Post LTCM: 8/1998 - 11/1998; Post dot-com: 3/2001 – 5/2007; Post 9/11: 9/2001 – 11/2001; Post 2002 recession: 7/2002 – 11/2004; Post GFC: 2/2009 - 1/2013; Post sovereign debt crisis I: 6/2010 - 10/2010; Post sovereign debt crisis II: 10/2011 – 2/2012; Post Brexit: 6/2016 - 7/2016; Post 2018 pullback: 12/2018 – 6/2019; Post 2020 pullback: 3/2020 – 7/2020. **The bar is truncated for the Dot-com bubble recovery due to its extreme differential between others and visibility. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

* As of 31 December 2020. Return computations in US dollars for ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM. Dates used are based off the end dates of Chart 8. Post Black Monday: 11/1987 - 6/1989; Post LTCM: 8/1998 - 11/1998; Post dot-com: 3/2001 – 5/2007; Post 9/11: 9/2001 – 11/2001; Post 2002 recession: 7/2002 – 11/2004; Post GFC: 2/2009 - 1/2013; Post sovereign debt crisis I: 6/2010 - 10/2010; Post sovereign debt crisis II: 10/2011 – 2/2012; Post Brexit: 6/2016 - 7/2016; Post 2018 pullback: 12/2018 – 6/2019; Post 2020 pullback: 3/2020 – 7/2020. **The bar is truncated for the Dot-com bubble recovery due to its extreme differential between others and visibility.

 

Chart 9: Gold prices perform well following the period after a systemic selloff and its subsequent recovery

Gold prices perform well following the period after a systemic selloff and its subsequent recovery

Performance of gold and treasuries from the market trough (bottom) to the market recovery point (equity market levels before the systemic selloff)*

Gold prices perform well following the period after a systemic selloff and its subsequent recovery
Performance of gold and treasuries from the market trough (bottom) to the market recovery point (equity market levels before the systemic selloff)*
* As of 31 December 2020. Return computations in US dollars for ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM. Dates used are based off the end dates of Chart 8. Post Black Monday: 11/1987 - 6/1989; Post LTCM: 8/1998 - 11/1998; Post dot-com: 3/2001 – 5/2007; Post 9/11: 9/2001 – 11/2001; Post 2002 recession: 7/2002 – 11/2004; Post GFC: 2/2009 - 1/2013; Post sovereign debt crisis I: 6/2010 - 10/2010; Post sovereign debt crisis II: 10/2011 – 2/2012; Post Brexit: 6/2016 - 7/2016; Post 2018 pullback: 12/2018 – 6/2019; Post 2020 pullback: 3/2020 – 7/2020. **The bar is truncated for the Dot-com bubble recovery due to its extreme differential between others and visibility. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

* As of 31 December 2020. Return computations in US dollars for ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM. Dates used are based off the end dates of Chart 8. Post Black Monday: 11/1987 - 6/1989; Post LTCM: 8/1998 - 11/1998; Post dot-com: 3/2001 – 5/2007; Post 9/11: 9/2001 – 11/2001; Post 2002 recession: 7/2002 – 11/2004; Post GFC: 2/2009 - 1/2013; Post sovereign debt crisis I: 6/2010 - 10/2010; Post sovereign debt crisis II: 10/2011 – 2/2012; Post Brexit: 6/2016 - 7/2016; Post 2018 pullback: 12/2018 – 6/2019; Post 2020 pullback: 3/2020 – 7/2020. **The bar is truncated for the Dot-com bubble recovery due to its extreme differential between others and visibility.

 

Chart 9: Gold prices perform well following the period after a systemic selloff and its subsequent recovery

Gold prices perform well following the period after a systemic selloff and its subsequent recovery

Performance of gold and treasuries from the market trough (bottom) to the market recovery point (equity market levels before the systemic selloff)*

Gold prices perform well following the period after a systemic selloff and its subsequent recovery
Performance of gold and treasuries from the market trough (bottom) to the market recovery point (equity market levels before the systemic selloff)*
* As of 31 December 2020. Return computations in US dollars for ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM. Dates used are based off the end dates of Chart 8. Post Black Monday: 11/1987 - 6/1989; Post LTCM: 8/1998 - 11/1998; Post dot-com: 3/2001 – 5/2007; Post 9/11: 9/2001 – 11/2001; Post 2002 recession: 7/2002 – 11/2004; Post GFC: 2/2009 - 1/2013; Post sovereign debt crisis I: 6/2010 - 10/2010; Post sovereign debt crisis II: 10/2011 – 2/2012; Post Brexit: 6/2016 - 7/2016; Post 2018 pullback: 12/2018 – 6/2019; Post 2020 pullback: 3/2020 – 7/2020. **The bar is truncated for the Dot-com bubble recovery due to its extreme differential between others and visibility. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

* As of 31 December 2020. Return computations in US dollars for ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM. Dates used are based off the end dates of Chart 8. Post Black Monday: 11/1987 - 6/1989; Post LTCM: 8/1998 - 11/1998; Post dot-com: 3/2001 – 5/2007; Post 9/11: 9/2001 – 11/2001; Post 2002 recession: 7/2002 – 11/2004; Post GFC: 2/2009 - 1/2013; Post sovereign debt crisis I: 6/2010 - 10/2010; Post sovereign debt crisis II: 10/2011 – 2/2012; Post Brexit: 6/2016 - 7/2016; Post 2018 pullback: 12/2018 – 6/2019; Post 2020 pullback: 3/2020 – 7/2020. **The bar is truncated for the Dot-com bubble recovery due to its extreme differential between others and visibility.

 

Chart 9: Gold prices perform well following the period after a systemic selloff and its subsequent recovery

Gold prices perform well following the period after a systemic selloff and its subsequent recovery

Performance of gold and ASEAN equities from the market trough (bottom) to the market recovery point (equity market levels before the systemic selloff)

Gold prices perform well following the period after a systemic selloff and its subsequent recovery
Performance of gold and ASEAN equities from the market trough (bottom) to the market recovery point (equity market levels before the systemic selloff)
*Returns in US dollars. Dates used are based off the end dates of Chart 8. September 11: 9/2001-01/2002; Great recession: 03/2009–04/2010; China Deleveraging: 01/2016–10/2017; Sovereign debt crisis: 10/2011–09/2012; COVID-19 crisis: 05/2020 - 01/2021. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*Returns in US dollars. Dates used are based off the end dates of Chart 8. September 11: 9/2001-01/2002; Great recession: 03/2009–04/2010; China Deleveraging: 01/2016–10/2017; Sovereign debt crisis: 10/2011–09/2012; COVID-19 crisis: 05/2020 - 01/2021. 

 

Chart 9: Gold prices perform well following the period after a systemic selloff and its subsequent recovery

Gold prices perform well following the period after a systemic selloff and its subsequent recovery

Performance of gold and Chinese bonds from the market trough (bottom) to the market recovery point (equity market levels before the systemic selloff)

Gold prices perform well following the period after a systemic selloff and its subsequent recovery
Performance of gold and Chinese bonds from the market trough (bottom) to the market recovery point (equity market levels before the systemic selloff)
Dates used are based off the end date of Chart 8 until: SARS: 2003/7-2004/3; Policy adjustment led pullback: 2004/12-2007/10; Great Recession: 2/2009 – 1/2013; Sovereign debt crisis I: 6/2010 – 10/2010; Sovereign debt crisis II: 10/2011 – 2/2012; 2015 deleverage: 2015/9-2015/12; 2018 pullback: 12/2018 – 6/2019; 2020 pullback: 3/2020 – 7/2020 Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

Dates used are based off the end date of Chart 8 until: SARS: 2003/7-2004/3; Policy adjustment led pullback: 2004/12-2007/10; Great Recession: 2/2009 – 1/2013; Sovereign debt crisis I: 6/2010 – 10/2010; Sovereign debt crisis II: 10/2011 – 2/2012; 2015 deleverage: 2015/9-2015/12; 2018 pullback: 12/2018 – 6/2019; 2020 pullback: 3/2020 – 7/2020

 

Chart 9: Gold prices perform well following the period after a systemic selloff and its subsequent recovery

Gold prices perform well following the period after a systemic selloff and its subsequent recovery

Performance of gold and treasuries from the market trough (bottom) to the market recovery point (equity market levels before the systemic selloff)*

Gold prices perform well following the period after a systemic selloff and its subsequent recovery
Performance of gold and treasuries from the market trough (bottom) to the market recovery point (equity market levels before the systemic selloff)*
* As of 31 December 2020. Return computations in US dollars for ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM. Dates used are based off the end dates of Chart 8. Post Black Monday: 11/1987 - 6/1989; Post LTCM: 8/1998 - 11/1998; Post dot-com: 3/2001 – 5/2007; Post 9/11: 9/2001 – 11/2001; Post 2002 recession: 7/2002 – 11/2004; Post GFC: 2/2009 - 1/2013; Post sovereign debt crisis I: 6/2010 - 10/2010; Post sovereign debt crisis II: 10/2011 – 2/2012; Post Brexit: 6/2016 - 7/2016; Post 2018 pullback: 12/2018 – 6/2019; Post 2020 pullback: 3/2020 – 7/2020. **The bar is truncated for the Dot-com bubble recovery due to its extreme differential between others and visibility. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

* As of 31 December 2020. Return computations in US dollars for ‘US treasuries’: Bloomberg Barclays US Treasury Index; ‘gold’: LBMA Gold Price PM. Dates used are based off the end dates of Chart 8. Post Black Monday: 11/1987 - 6/1989; Post LTCM: 8/1998 - 11/1998; Post dot-com: 3/2001 – 5/2007; Post 9/11: 9/2001 – 11/2001; Post 2002 recession: 7/2002 – 11/2004; Post GFC: 2/2009 - 1/2013; Post sovereign debt crisis I: 6/2010 - 10/2010; Post sovereign debt crisis II: 10/2011 – 2/2012; Post Brexit: 6/2016 - 7/2016; Post 2018 pullback: 12/2018 – 6/2019; Post 2020 pullback: 3/2020 – 7/2020. **The bar is truncated for the Dot-com bubble recovery due to its extreme differential between others and visibility.

 

Chart 9: Gold prices perform well following the period after a systemic selloff and its subsequent recovery

Gold prices perform well following the period after a systemic selloff and its subsequent recovery

Performance of gold and treasuries from the market trough (bottom) to the market recovery point (equity market levels before the systemic selloff)*

Gold prices perform well following the period after a systemic selloff and its subsequent recovery
Performance of gold and treasuries from the market trough (bottom) to the market recovery point (equity market levels before the systemic selloff)*
*Returns in Australian dollars. Dates based off end dates of Chart 8: LTCM: 10/1998-12/1998; 2002 recession: 3/2003-7/2004; Global financial crisis: 3/2009-1/2013; Sovereign debt crisis I: 5/2010 – 11/2010; Sovereign debt crisis II: 10/2011 – 2/2012; 2015 China deleveraging: 2/2016-2/2017; 2018 pullback: 12/2018-6/2019; 2020 pullback: 3/2020-7/2020 Source: Bloomberg, World Gold Council Sources: Bloomberg, World Gold Council

Sources: Bloomberg, World Gold Council; Disclaimer

*Returns in Australian dollars. Dates based off end dates of Chart 8: LTCM: 10/1998-12/1998; 2002 recession: 3/2003-7/2004; Global financial crisis: 3/2009-1/2013; Sovereign debt crisis I: 5/2010 – 11/2010; Sovereign debt crisis II: 10/2011 – 2/2012; 2015 China deleveraging: 2/2016-2/2017; 2018 pullback: 12/2018-6/2019; 2020 pullback: 3/2020-7/2020 Source: Bloomberg, World Gold Council

Footnotes

  1. Based on the LBMA Gold Price PM from 1 December 2007 to 27 February 2009.

  2. Based on the LBMA Gold Price PM from 1 October 2018 to 27 December 2018 and from 31 January 2020 to 31 March 2020.

Important disclaimers and disclosures [+]Important disclaimers and disclosures [-]