Gold or stocks are both very popular investment channels today. Depending on the tastes and goals of each person to choose whether to buy gold or participate in securities. So, how does the price of gold affect the stock market? What is the relationship of these two objects?
The relationship between gold and stocks
The stock market and the gold market are both channels to measure the development of a national economy. Because, their price fluctuations are adjusted very quickly when new news about the market is published. These are two effective channels for mobilizing domestic and foreign capital that the governments of each country use.
When it comes to the correlation between gold and stocks, experts have to analyze a third factor, which is the USD. When stocks go down, investors sell off stocks and bonds to return to collect USD. At this time, USD price increases sharply due to high market demand, causing gold price to decrease.
That is, through the impact on the USD, it will be seen that the relationship between stocks and gold is indirect. In addition, there are many other factors that can affect the stock market that do not need to be through the USD.
For example, when the government introduces regulatory policies or macroeconomic variables, it also partially adjusts the increase/decrease in stock prices.
However, in the Vietnamese market, it is different, because the supply of gold is still limited, the government always controls gold investment, so the domestic gold price is always higher than the international one. At this time, if the USD changes, it will not have much impact on gold and domestic stocks.
For the gold market, a high-value reserve instrument, a popular medium of exchange as well as a unit of account. Gold is a precious metal so its appearance in a portfolio is understandable. Not only people but also central banks and financial institutions also hold large gold reserves.
As a rule of thumb: New traders who join when they see a sign that gold is falling is to sell securities to buy gold, wait for the price to rise, and then sell. At this time, stock prices went down and gold prices increased rapidly according to market supply and demand.
How does the price of gold affect bonds?
The price of gold will rise if bond yields fall. When buying gold you face the risk of inflation depreciating the currency. Owning bonds, investors receive interest every trading period, while gold reserves do not really bring income in the long run.
If bond yields decrease, the attractiveness of bonds to investors weakens, holding bonds does not bring good returns. At this time, people tend to switch to buying gold to wait for the price to increase and sell to make a profit, which makes the gold price increase sharply.
Does the price of gold reflect the stock market?
Gold price will partly reflect the current stock market situation. Investing in gold is putting money into the safest haven. Therefore, its profitability is not too attractive to investors. Then why do people tend to spend money on collecting gold? Because negative movements are unpredictable in the stock market.
When participating in trading of bonds, stocks, etc., investors' psychology is to set the growth expectation of these securities in the future. If the market has risk factors that reduce investors' expectations, they will withdraw capital and sell off to get money for other better channels.
The gold price increases too quickly, which means that the current selling volume is very large, supply is more than demand, which reduces stock indexes, causing market wobbles, the price list dyes a bright red and the VN Index is in danger of touching bottom / bottom out.
There are also exceptions where the relationship between stock indexes and gold is not as strong as it once was. Although the indexes have been reduced during the current outbreak, investors have not yet panicked to the point of selling out to buy gold, because they have high expectations that the economy will develop better after the pandemic. Therefore, the current gold price is rising very high does not mean that the stock market is in a serious crisis.
Tips when choosing between gold and stock investment
Stock investment requires you to have knowledge of the market, the field of participation. Studying and researching carefully will bring a good return on investment. If asked which one should choose between gold and stocks, what is your investment goal?
Gold is the safest reserve channel, if you choose to buy gold, you will face less market risk but the possibility of making a profit is not too high.
Securities with diversified attractive investment portfolio. If you are knowledgeable about it, you will have a good chance of making good profits, and at the same time, the risk of facing the risks of economic fluctuations is also higher.
You can both invest in gold and participate in stock trading to diversify your investment portfolio. Always monitor and update market news, timely make the best buying and selling decisions.
Thus, it can be affirmed that the gold price affects the stock market quite a lot. Therefore, in the investment process, you should pay attention to these two channels to know the current situation of the market, thereby making a reasonable investment choice.
REFERENCES
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