What does it mean when safe-haven assets fail and both gold and U.S. stocks decline together?

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The traditional safe-haven asset gold has shown unusual performance this month, falling in sync with US stocks. This rare phenomenon reveals that the market may be facing deeper crises—investors are losing their safe havens.

Last Friday, gold prices fell by more than 2%, marking a new one-week low. Meanwhile, the S&P 500 index at one point dropped 1.3% from the previous trading day, and Bitcoin fell below $95,000. Such synchronized fluctuations indicate tight market liquidity, with investors forced to sell profitable assets to offset losses in other holdings.

(Last Friday’s S&P 500 index, Bitcoin, and COMEX gold futures intraday chart)

Historical data shows that the 21-day rolling correlation between gold and the S&P 500 in November this year is a positive 0.22, continuing the weak positive correlation seen since October. Analysts warn that as worries about an AI bubble intensify, investors hoping to hedge tech stock risks with gold may be disappointed in the short term.

Liquidity Pressure Drives Abnormal Fluctuations

The simultaneous decline of gold and stocks signals tight market liquidity. Michael Armbruster, co-founder and managing partner at futures brokerage Altavest, pointed out that in the short term, gold may fluctuate in sync with other risk assets as investors seek liquidity.

During last Friday's trading, the S&P 500 briefly turned positive but ultimately closed slightly lower, while Bitcoin and gold prices fell throughout the day. The previous day, the index had tumbled sharply, putting November overall into a loss.

The S&P 500 was weighed down by the tech sector, and doubts about the overall health of the economy intensified.

Legendary investor Michael Burry's short position on Palantir has sparked further attention to the AI bubble. Adrian Ash, research director at BullionVault, says:

If the AI sector continues to sell off, investors hoping to use gold to hedge tech stock risks may be disappointed, at least in the short term.

Market Logic Behind the Correlation

Gold is usually seen as a safe-haven asset, benefiting when market risk sentiment rises.

Adrian Ash pointed out that gold "in the long run has no correlation with the stock market," but positive correlation means the two assets move in the same direction, possibly indicating that investors suffering stock market losses are eager to use gold gains to offset their losses.

According to Dow Jones Market Data's analysis of FactSet data, last Friday's 21-day rolling correlation between active gold futures contracts and the S&P 500 was a weakly positive 0.22. The correlation has mostly remained mildly positive through October and November so far.

Throughout this year, the one-month rolling correlation between gold and the S&P 500 has fluctuated between positive and negative, but the average value is close to zero.

Adrian Ash explained that a correlation of 1.0 means they move perfectly together, -1.0 means they move opposite, and zero means gold and stocks have "no consistent daily relationship." Adrian Ash says:

This year’s near zero average reading "obscures the fact that sometimes the relationship is strongly positive, and sometimes strongly negative."

Reshuffling Assets in Times of Crisis

Adrian Ash noted that in a "true crisis", all correlations tend towards 1.0 because "traders losing on one set of assets need to generate cash from profitable positions".

This explains why gold fell during the worst phase of the 2008 market crash, and plummeted in the early days of the COVID panic in 2020.

However, Adrian Ash said that gold’s long-term value as financial insurance subsequently emerges, as the safe-haven metal "finds a bottom faster, rebounds more strongly than equities, continues its long-term upward trend, and reduces overall portfolio losses."

History shows that although gold may fall together with stocks in the short term, its safe-haven asset properties usually re-emerge after crises deepen.

Adrian Ash emphasized: “Though nothing is guaranteed, generally speaking, it’s worthwhile to look past short-term noise and keep a diversified portfolio.” This advice is particularly important in the current environment, where investors need to balance short-term liquidity needs and long-term asset allocation.

Risk Warning & DisclaimerThe market has risks, investment needs caution. This article does not constitute personal investment advice, nor has it considered the individual investment objectives, financial conditions, or needs of any particular user. Users should consider whether any opinions, views or conclusions described herein are suitable for their specific circumstances. Investments made accordingly are at your own risk. ```