An odd phenomenon has unfolded in recent weeks: Both gold and stocks have surged higher. Prices for bullion hit a seven-year high on Tuesday, while major stock indexes continued their dramatic rally from their steep losses of last month.
This combination suggests at least one group of investors will be disappointed. Gold investors, in particular, may want to check their assumptions.
Buying precious metals is essentially a bet on economic pessimism. It’s a wager that the normal order of things will be disrupted and paper currency will lose its buying power while people flock to the supposed security of hard assets.
In contrast, a decision to load up on shares exudes economic optimism. It’s based on increasing confidence that things will turn out fine, both for companies and for the broader economy.
So why have both gold and stocks, the yin and yang of the investing world, been going up together? Most likely, the dual rally reflects the cascade of economic support measures being unleashed by governments and central banks.