Gold prices rising, will stock market fall? ‘Nixon shock’ era holds cues

Gold prices have traditionally moved inversely to equities, often serving as a risk signal for stock market trends. A rising gold price typically implied falling stocks, and vice versa.

However, ICICI Securities believes this correlation is no longer a reliable indicator. The brokerage noted that gold prices rising today do not necessarily suggest a decline in equities, nor does a stock rally imply weaker gold.

Such breakdowns have occurred before. After the 2008–09 global financial crisis, stocks rebounded in 2010 on the back of quantitative easing by central banks, even as gold continued to climb, creating a positive correlation. A similar overlap was seen in the 1980s, when both gold and equity indices hit record highs together.

Post the ‘Nixon shock’ of 1971 – effectively ended the Bretton-Woods system – gold prices were unleashed from their suppressed level, having being fixed at $35/oz since 1934. 

This, resulted in gold prices soaring for the next two-decades, augmented by high inflation and geopolitical risks. During this reset period for gold prices, ICICI Securities said the correlation between gold and equities broke down – displaying random negative and positive correlations; which, was just coincidental to the sustained rise in gold prices and not driven by causality. 

Since 2022, the inverse relationship has again faded. ICICI attributed this to a structural reset in gold prices, driven by central banks stepping up purchases of the metal as a reserve asset amid heightened geopolitical risks—from the Russia-Ukraine war to ongoing tariff disputes.

“Until this reset runs its course, and central bank demand for gold normalises, any correlation with equities—positive or negative—may be coincidental rather than causal,” ICICI Securities said.

In this context, the brokerage argued, using gold prices as a signal for long or short equity positions remains highly unreliable.