Gold vs Stocks and Interest Rates – No Correlation

July 19, 2023

When others speak of gold as hedge or safe haven investment, they are usually referring to what is sometimes claimed as an inverse correlation between gold and stocks; i.e., gold tends to go up when stocks decline and vice versa.

Based on casual logic, it sounds reasonable. The problem is that the logic is based on false assumptions.

First of all, gold is not an investment.

Gold is real money and a store of value.  Its fundamentals have nothing to do with the fundamentals for stocks or any other investments. In addition, there have been times when both stocks and gold went up or down simultaneously.

Classifying gold as an alternative investment, or a safe haven asset, confuses people and creates unrealistic expectations.

Secondly, the meaning and application of the term correlation is misunderstood and misapplied.

From Investopedia:

Correlation is a statistic that measures the degree to which two variables move in relation to each other. Correlation measures association, but doesn’t show if x causes y or vice versa, or if the association is caused by a third–perhaps unseen–factor.”

In order for correlation to exist, there must be fundamentals that directly connect the two items being compared.

For example, there is a possible correlation between localized, bad weather and crop failures. But how do you predict the timing and extent, or the effects, to a degree that can be profitable?

And there certainly is a correlation between the price of labor and materials vs. the finished cost of building a new home. But there is no correlation between the price of labor and materials vs. the number of new housing starts.

We can find patterns and rhythm that might appear to be correlation (or inverse correlation) by plotting the price differential of any two items but it still does not imply correlation.


Over and over again, the following statement or something similar continues to find its way into commentary about gold:

“…prospects of higher US interest rates have the ability to limit upside gains. It must be kept in mind that Gold is a zero-yielding asset that tends to lose its allure in a high-interest rate environment”  

A variation of that statement:

“Because gold doesn’t bear interest, it struggles to compete when interest rates rise.” 

Nothing could be further from the truth. Below are two examples from gold price history which clearly refute and contradict the concept that a correlation exists between gold and interest rates.

During the ten-year period 2001-2011, gold’s price increased from $275.00 per ounce to a high of nearly $1900.00 per ounce. All the while,  interest rates continued their multi-decade decline; eventually reaching zero.

Thirty years prior to that, between 1970 and 1980, the price of gold increased from $35.00 per ounce to $850.00 per ounce. Rather than declining, though, interest rates were on a tear.

Instead of “struggling to compete”, gold was galloping ahead in the face of ever higher interest rates and increasing lack of demand for bonds because of inflation fears.

The higher rates were a reflection of lower prices for bonds and particularly U.S. Treasury securities. The 10-year U.S. Treasury bond yield exceeded 15%. Which makes you sort of wonder when you read something like this:

Higher rates boost the value of the dollar by making U.S. assets more attractive to investors seeking yield.” 

Two ten-year periods of outsized gains in the price of gold. And interest rates were doing something exactly opposite during each period. There simply is no correlation between gold and interest rates.


The higher price of gold is correlated to the loss of purchasing power in the U.S. dollar.  At $2000 oz. the price of gold reflects a ninety-nine percent loss of U.S. dollar purchasing power. 

The higher gold price comes after the fact. In other words, the price of gold moves higher only after the effects of inflation are fully recognized and ingrained in the financial and economic systems. 

A hugely higher gold price in the future can only come after huge, further losses in U.S. dollar purchasing power. 

by Kelsey Williams for Neptune Global


Neptune Global is a full service precious metals dealer serving individual investors, the wealth management industry, broker dealers and institutional investors. The firm’s platform of investment bullion includes all forms of traditional physical precious metals in conjunction with innovative physical precious metal investment assets which provide unparalleled diversification, transparency and liquidity. Their leadership in the market is documented with such official designations as being the recipient of a US Patent for the PMC Ounce (Precious Metals Composite). While dynamic offerings such as the PMC Ounce provide investors with many of the conveniences and benefits generally associated with mutual funds and ETFs, all of Neptune Global’s product offerings remain true to the firm’s core convictions related to the time tested value ascribed to physical precious metals ownership.

The Incas thought gold represented the glory of their sun god and referred to the precious metal as “Tears of the Sun.”
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