The Equity and Gold Duet: Who will leave the party first?
Josh Groves
2nd November 2025
Written by Josh Groves
Consumers hurry to purchase equities in times of market optimism and turn to gold, a “safe” asset, in times of pessimism. In 1979, whilst equities tanked, the price of gold more than doubled. Two decades later, we saw the reverse: in 1999, the S&P 500 rose by 19.5%, partly due to the tech boom, while gold fell by 10% during the same period. But in the last 10 months to October 2025, the S&P 500 has risen by 18%, and gold has risen by 43% over the same time.
This prompts the question: Can high valuations in both gold and equities co-exist at the same time?
We first have to think about the purpose of these assets in portfolios. Equities are seen as a riskier yet more rewarding asset class, while gold is conventionally treated as a hedge or diversification tool. Logically, they have opposing objectives, and at surface level, it doesn’t make sense for them to move in the same direction. But perhaps current market conditions could be described as both optimistic and pessimistic.
M&A, IPO, and capital markets activity have at last rebounded as expected, with IPO revenues up 17% from H1 2024, and deal values up 15% from H1 2024. Falling interest rates should deliver stronger consumption, should they continue to be cut towards the end of the year.
At the same time, uncertainty over trade deals remains high, as Trump consistently teases tariffs and trade wars. A sluggish labour market in the United States, along with sticky inflation and a fiscal hole in the UK, are surely dampening confidence.
If this analysis is correct, then it would make sense for there to be a positive relationship between gold and equities, albeit at a more measured pace.
Another thing to consider is “the value of gold.” A value investor such as Warren Buffett would shun the idea of gold, arguing that it doesn’t create any value or cash flows, and that its price is merely driven by cyclical demand. This is a dangerous quality, as it makes gold more susceptible to psychological investing, such as FOMO. But perhaps gold does have some value.
A short trip to the Bank of England Museum in London would inform you that gold was used as currency long before paper notes were introduced. Its rarity, durability, and elemental characteristics, such as being the only metal that naturally shares a luminosity similar to the sun’s colour, all contribute to a kind of “value without value.”
Perhaps value can exist in something like gold, even if it isn’t cash generative. In this sense, the price of gold may not be so unreasonable. And if gold can be seen as more than a hedge, then perhaps this co-movement of equities and gold isn’t so irrational after all.
The key question, however, is which will drop out first. At some stage, uncertainty will overcome optimism, or vice versa, and one will fall. But where will investors turn to hedge if things go south?
