Seemingly one of the most stubbornly durable bits of “market lore” is that traders treat gold as some sort of ultimate safe haven. Tellingly, the financial news media is often filled with hand-wringing when this relationship breaks down, as it sometimes invariably does.

2020 offered a potent case in point. As the Fed successfully pushed back against COVID-inspired market turmoil, gold began a spirited march upward alongside stock prices. A chorus of exasperated traders and journalists seemed convinced that this was some sort of short-lived aberration, yet the move continued for the better part five months.

In fact, the logic driving market action seemed quite sensible. The Fed’s fireworks pushed inflation expectations up while nominal interest rates sank, sending real rates of return into negative territory. Stocks offering dividend yields with a sliver of positive real income and gold – which offers no yield but protects against negative returns on cash – understandably rose in tandem.

Trying to fight this on the premise that “gold is a haven” would have likely been disastrous. Only when the Fed signaled in August that it might be done expanding the stimulus toolkit and would be adopting a hands-off stance did gold establish a top and turn lower. A simple look at the chart might have enlightened many, yet the “gold is a haven” tale persists. The takeaway here is that traders are probably best served not to take such things at face value.

S&P 500, SPOT GOLD, THE TED SPREAD AND THE US DOLLAR

Chart prepared by Ilya Spivak, created with TradingView