Free ParkingA look at the this year's XAU chart vs. the S&P 500 index shows that gold stocks did indeed rally while the broader market continued to fade, leading some to argue the gain is destined to be short-lived. The flight-to-safety phenomenon has occurred numerous times, most notably during the stock market crash of 1987. That year, the XAU index shot from 75 to 160, but the gain didn't last; the stock market stabilized, and the XAU sank below 90 by the beginning of 1988.
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XAU vs. S&P 500
The XAU enjoyed a sustained bull market from 1993 to 1996 as the index rose from 65 to 150. Gold shares were supported at the time by the economic recession of the early 1990s, a threat of inflation with interest rates in the high single digits, heightened demand from the manufacturing sector, and improved margins due to industry consolidation. Gold itself remained stubbornly below $400, however, as many governments, most notably Britain and Mexico, decided to pare their reserves, providing a huge supply.