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Gold Stays Strong as Stocks and Bitcoin Tumble

Gold has benefited from the turmoil surrounding Ukraine and is serving as a hedge against raging inflation.
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Over the past year market players have debated whether bitcoin is replacing gold as a store of value in times of trouble. 

But it is gold that has held up during the recent drop in stock prices and the heightened tension involving Ukraine, while bitcoin has stumbled.

“Gold has reemerged as a safe haven and portfolio tail hedge given repricing and selloff in equities and crypto assets,” Aakash Doshi, head of commodities for North America at Citi Research, told The Wall Street Journal.

Gold has firmed 0.03% so far this year to $1,833.96 an ounce. Meanwhile, the S&P 500 has slid 7% and bitcoin has lost 20%.

Gold has traditionally been viewed as a hedge against declines in other markets and as a hedge against inflation, which is relevant given the 7% surge in consumer prices last year. 

The metal also has served as a store of value when world affairs turn tumultuous, as they have with Russia’s threat to invade Ukraine and the U.S. threat to respond strongly if it does.

“Gold thrives on uncertainty, and we’ve got that by ladleful,” Rhona O’Connell, head of market analysis for EMEA & Asia at the StoneX brokerage firm, told The Journal. She forecast that gold will average $1,900 during the second half of the year.

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Investor interest in gold shined clearly on Friday, when SPDR Gold Shares  (GLD) - Get SPDR Gold Shares Report, the biggest exchange-traded fund holding physical gold, enjoyed a record inflow of $1.6 billion, according to Dow Jones Market Data.

As for stocks, if they continue falling, gold may benefit. In nine previous occasions when the S&P 500 fell at least 19%, going back to 1976, gold rose in six of them--between 6% and 54%. 

And in two of the three episodes when gold fell, its decline was much smaller than that of the S&P 500 -- a 5% drop for gold in 1998 and 5% in 2020 as well.

To be sure, gold’s gains have been restrained by the Federal Reserve’s adoption of a more hawkish monetary policy. Many economists and investors now expect the Fed to raise interest rates four times this year, beginning in March. 

Rising rates hurt gold by limiting inflation and by making investments with income payments, such as bonds, more attractive.

“We believe that the dialogue coming from the Fed will be hawkish, and as a result, we think gold will react negatively to that dialogue in the very short term,” James Hatzigiannis, chief market strategist at Ploutus Capital Advisors, told MarketWatch.

The Fed’s policy-making Federal Open Market Committee finishes its meeting Wednesday, with a statement due shortly after 2 p.m. U.S. Eastern.

“Gold’s resilience of late is set to be tested by the latest policy signals emanating from the FOMC today,” Han Tan, chief market analyst at London brokerage Exinity, told Reuters.