Gold Shines Through Stock Market Storm

As Wall Street took investors on a frightfully wild rollercoaster ride in early August, gold proved yet again that it is a strong and effective counterweight to stock market risk.

Soft economic data triggered fears of a possible recession, sending the Nasdaq Composite index into a three-day free fall, plunging 405 points on August 1, 418 points on August 2, and 576 points on August 3 for a total drop of 8 percent. The Standard and Poor’s 500 Index fell six percent during the three-day plunge. Meanwhile, gold held steady, climbing one percent as stocks were sinking.

To be sure, gold has seen its share of volatile days over history. But when the stock market suffers steep declines, gold typically stands tall. As a safe haven asset, gold has a negative correlation with the stock market during times of extreme stress; its value is not dependent upon the next quarterly earnings report.

Even as the stock market recovered some of its summertime losses, gold was still shining bright. For the month-long period ended August 9, gold was up 4.4 percent, compared to losses of 4.1 percent for the S&P 500 during the same period, and 9 percent for the Nasdaq Composite. Year-to-date, gold also was a clear winner, up 14 percent, compared to gains of 12 percent for the S&P 500 and 11 percent for the Nasdaq Composite.