What does it mean when safe-haven assets fail, and gold falls alongside U.S. stocks?

Traditional safe-haven asset gold has shown unusual performance this month, declining in sync with U.S. stocks. This rare phenomenon exposes the possibility that the market may face a deeper crisis—investors are losing their safe havens.

Last Friday, gold prices fell over 2%, hitting a new low for the week, while the S&P 500 index dropped by as much as 1.3% compared to the previous trading day, and Bitcoin fell below $95,000. This simultaneous fluctuation indicates tight market liquidity, forcing investors to sell profitable assets to cover losses in other positions.

(Last Friday's S&P 500 index, Bitcoin, and COMEX gold intraday charts)

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

Liquidity Pressure Drives Unusual Volatility

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

During last Friday's trading session, the S&P 500 index briefly turned positive before ultimately closing slightly lower, while Bitcoin and gold prices fell throughout the day. The previous day, the index had plummeted significantly, resulting in an overall loss for November.

The S&P 500 index was dragged down by the tech sector, exacerbating doubts about the overall health of the economy.

Legendary investor Michael Burry's short position on Palantir has sparked more attention on the AI bubble. BullionVault research director Adrian Ash stated,

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

Market Logic Behind the Correlation

Gold is typically viewed as a safe-haven asset that benefits during times of heightened market risk sentiment.

Adrian Ash noted that gold "has no correlation with the stock market in the long run," but a positive correlation means that the two assets are moving in the same direction, which may indicate that investors suffering losses in the stock market are eager to utilize gold gains to offset those losses.

According to an analysis of Dow Jones market data on FactSet data, the rolling 21-day correlation between active gold futures contracts and the S&P 500 index last Friday was a weak positive 0.22. Throughout October and November to date, this correlation reading has mostly remained moderately positive.

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

Adrian Ash explained that a correlation reading of 1.0 means both move in sync, -1.0 means they move in opposite directions, and a zero mean indicates that gold and the stock market "have no daily relationship at all." Adrian Ash stated:

"The average reading close to zero this year masks the fact that sometimes there is a strong positive correlation and sometimes a strong negative correlation."

Asset Repricing in Times of Crisis

Adrian Ash pointed out that "in a 'real crisis', all correlations tend to 1.0, because traders losing on a set of assets need to raise cash from profitable positions."

This explains why gold fell during the most severe phase of the market crash in 2008, as well as during the initial panic of the COVID-19 pandemic in 2020.

However, Adrian Ash noted that the long-term value of gold as financial insurance was subsequently reflected, as this safe-haven metal "finds its bottom faster, rebounds stronger than the stock market, continues its long-term upward trend, and reduces overall portfolio losses."

Historical experience shows that although gold may decline alongside the stock market in the short term, its properties as a safe-haven asset typically re-emerge as the crisis deepens.

Adrian Ash emphasized: "While there are no guarantees, generally speaking, it is worth it to look beyond short-term noise and maintain a diversified portfolio." This advice is particularly important in the current market environment, where investors need to seek a balance between short-term liquidity needs and long-term asset allocation