(Kitco News) - Fears that a global trade war will push the U.S. and global economies into a recession have triggered a significant selloff in equity markets, with the S&P 500 losing 8.9% from its February highs. At the same time, gold prices have significantly outperformed the broader equity market as prices consolidate around $2,900 an ounce.
Some analysts have noted that gold prices will be sensitive to liquidity events in the current environment, as traders and investors are forced to sell their profitable trades to raise cash to cover their losses.
However, data also supports long-held beliefs that safe-haven demand is a significant supporting factor for gold during major drawdowns.
Kitco News asked ChatGPT to analyze how gold has performed against the S&P 500 when it has experienced a 10% correction. According to the data, spot gold generally sees modest gains in this scenario.
“During notable corrections—including those during the 2008 financial crisis and the COVID-19 market downturn—the average decline in the $SPX ranged between 10% and 15%, while spot gold (^XAUUSD) recorded gains in the 3% to 5% range, with some instances of higher appreciation in the most severe drawdowns,” the AI analysis said. “This approach strictly relies on the recorded weekly price data, ensuring that the analysis remains fully data-driven.”
“Statistical calculations indicate that over the entire period, the Pearson correlation coefficient between $SPX and ^XAUUSD is approximately –0.12,” ChatGPT added. “However, when the sample is limited to the identified drawdown periods, this inverse correlation strengthens to around –0.30. These figures suggest that, based solely on historical price data, spot gold tends to exhibit a countertrend response during major equity corrections in the cash market for the S&P 500. The data thereby supports the notion that ^XAUUSD can serve as a risk mitigator when $SPX declines sharply, as evidenced by its positive performance during these stress periods.”
The AI analysis is roughly in line with recent comments from commodity analysts. In a recent interview with Kitco News, George Milling-Stanley, Chief Gold Strategist at State Street Global Advisors, said that he expects gold prices to remain well supported as investors jump into gold-backed exchange-traded funds (ETFs) to protect their capital.
Last month, as the S&P 500 was starting its decline, SPDR Gold Shares (NYSE: GLD), the world’s biggest gold-backed ETF, saw a one-day inflow of $1.9 billion, the biggest increase in more than three years.
“ETF investors have been a little late to the party, but I am glad to see that they have finally joined,” said Milling-Stanley. “I think there's a very good likelihood that we will see investment demand continue to grow. The reasons behind gold’s rally are not going away; they're just getting stronger by the day.”
Ryan McIntyre, Managing Partner at Sprott Inc., noted that equity markets have been significantly overvalued according to many different metrics for a while now, so it's not surprising to see this significant correction.
He noted that the economic uncertainty caused by tariffs and the global trade war is fueling the selloff. He pointed out that the on-again, off-again trade dispute between the U.S., Canada, and Mexico makes it difficult for companies to plan long-term.
“This uncertainty is negative for capital investment, and that is going to hurt returns on a lot of assets, except for gold,” he said. “Gold is going to stand alone in this environment.”
Even if gold does see some selling pressure, most analysts have said that any correction would be a buying opportunity.
Bart Melek, Head of Commodity Strategy at TD Securities, said in a recent note that he could see gold prices falling to $2,800 an ounce as rising market volatility weighs on prices. However, he added that gold’s long-term uptrend remains in place, and he expects prices to break above $3,000 an ounce this year.
“Above-target U.S. inflation, driven by tariffs, wage pressures, and restrictive migration policies, along with a Fed that will eventually start to add monetary accommodation to fulfill its maximum employment mandate as the economy moderates, should see the yellow metal move into a sustained trading range above $3,000/oz as 2025 unfolds,” he said.
