Gold’s Milestone Isn’t Foretelling Much

Earlier this week, gold surpassed US$4,000 (roughly £2995) per ounce for the first time.^[i] Whilst we have seen positive reactions, many commentators we follow argue the milestone signals heightened market risks and a broader flight to a perceived “safe haven” from the US dollar. We doubt it. Based on our research, gold’s long-term moves don’t align with any of the conventional wisdom we often see about it, so in our view, spiking gold isn’t inherently bearish or a sign of anything ahead. Rather, we think all this surrounding chatter illustrates lingering investor scepticism, suggesting this bull market likely isn’t at a euphoric top.^[ii]

Here is the bearish story we have seen: Supposedly, gold reaching new highs signals investors and monetary policy institutions’ preferring the shiny metal over the US dollar and American long-term government bonds (called Treasurys) as a safe haven.^[iii] Also, citing the dollar’s depreciation against other major currencies this year, they argue investors are losing faith in the dollar tied to political and legislative risks.^[iv] In concert, they suggest these trends indicate nascent trouble for other US assets, like stocks. Some commentators we follow have dubbed it, the “debasement trade.”^[v]

Oddly, in our view, we have also seen some say gold’s rise signals trouble for all major currencies, seemingly forgetting they trade in pairs and can’t all weaken simultaneously.^[vi] To us, this illogic is the first signal this is a false fear.

Yet we see plenty more reasons. For one, we don’t think there is strong evidence people are abandoning the dollar and dollar-based assets the way we see some claim. Historically speaking, the dollar isn’t that weak. Nor are US Treasury yields sky high, which many associate with rising risk. Exhibits 1 and 2 show this, charting the US dollar’s value versus broad and “major” trade-weighted currency baskets and long-term Treasury yields since 1975.

Exhibit 1: US Dollar’s Minor Weakening

Source: FactSet, as of 8/10/2025. Nominal trade-weighted US dollar index (broad and major), monthly, 31/12/1974 – 30/9/2025.

Exhibit 2: Treasury Yields Aren’t Sky-High

Source: FactSet, as of 8/10/2025. 30-Year and 10-Year US Treasury yield, constant maturity, daily, 31/12/1974 – 7/10/2025. Note: The US government reintroduced 30-year bonds in 1977, so there is no data from 1975 – 1976.

Yes, the dollar is down this year. But it has been strengthening since this past July’s low—to little or no coverage in publications we follow.^[vii] And it is still up nicely this century, floating near its 2015 and 2024 levels—two periods in which commentators we follow warned of a strong dollar.^[viii] Treasury yields, on the other hand, are down year to date and well below levels seen in the 1970s and 1980s.^[ix] This doesn’t seem like a major exodus to us.

Meanwhile, the US-orientated S&P 500 index is up 16.0% in dollars year to date (8.2% in pounds).^[x] And lest you think that is just Artificial Intelligence-exposed Big Tech stocks—US small cap stocks are up 12.6% (5.0% in pounds) whilst the equal-weighted S&P 500 is up 10.6% (3.2% in pounds).^[xi] Based on our research, if there is a broad flight from a country’s markets, you don’t get generally positive returns.

Nor do we find it likely gold knows something stocks don’t, which seems like the core argument here. All similarly liquid assets digest information more or less simultaneously, in our experience, so we think gold is exceedingly unlikely to signal a flight to quality stocks somehow forgot to register. In our view, markets just don’t work like that.

It also isn’t that rare for US stocks and gold to rise together … as they largely have since 2022.^[xii] In our view, if the claims rising gold signals doom for stocks were true, the two should have a strong negative correlation, with gold continuing to rise as stocks eventually register those alleged problems. In statistical terms, this implies a -1.00 correlation coefficient. The opposite, a 1.00, implies a strong positive correlation (the two rise in lockstep). Exhibit 3 explores this relationship, charting the rolling 52-week correlation between US stocks and gold prices. This shows how strong the relationship was over the preceding year.

Exhibit 3: Gold and Stocks’ Non-Relationship

Source: FactSet, as of 8/10/2025. Rolling 52-week correlation between weekly price changes in gold and S&P 500, 31/12/1999 – 7/10/2025. Presented in US dollars. Currency fluctuations between the dollar and pound may result in higher or lower investment returns.

As the chart shows, their correlation bounced roughly between -0.40 and 0.40 over the past 25 years. That means sometimes, gold and stocks had a weak-but-positive correlation, moving together. Other times, they moved in opposite directions. Regardless, we think the trends were so short-lived as to be almost meaningless, with points of strong negative (and positive) correlation few and far between and occurring during stock bull and bear markets (prolonged, fundamentally driven broad equity market declines of -20% or worse).

Longer term, this nets out to a 0.04 correlation over this entire stretch.^[xiii] Functionally, that means no relationship. In our view, gold can’t both signal something fundamentally important for stocks and have no relationship with their returns. To us, arguing otherwise is simply illogical.

All that aside, all of this talk seems like lingering investor scepticism to us. Interestingly, it comes as publications we follow have begun warning of euphoric sentiment and a potential market bubble.^[xiv] Things like Artificial Intelligence’s role in economic growth, high stock valuations and other supposed euphoric signs have commentators we follow claiming a rerun of the 2000s dot-com crash is coming.^[xv]

We aren’t convinced, mind you, and we think today’s scepticism illuminates one reason why. Decades of research tell us euphoria and market bubbles happen when sentiment runs so hot people overlook underlying economic weakness. We saw this in the Tech bubble, when skyrocketing valuations diverted eyeballs from deteriorating company fundamentals.^[xvi] Conversely, we don’t think bubbles happen when people broadly latch onto bearish narratives with no factual basis—which seems the case today. Our research suggests that is more resemblant of a bull market wall of worry, which tells us this one has room to run.^[xvii]