Why gold and equities are moving in opposite directions?

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 Why gold and equities are moving in opposite directions?
The S&P 500 late last week closed at a new record high, while the German DAX also hit a new record level. The BSE Sensex is just 300 points away from a new record high.

Markets across the globe are either hitting new highs or are very close to breaking record levels, after almost 5 years of pain.

Gold on the other hand is set to fall for the first time in 12 years and has now lost a fifth of its value this year. Gold and equities are moving in opposite and directions the reasons for the same are not difficult to gauge.

First, gold rallies when there is either geo-political tensions or economic growth is faltering. Now, there seems to be no bad news at the moment. Geo-Polictical tensions, especially a strike on Syria seems to be averted for now, while Iran seems to be inclined for talks over its nuclear porgramme.

On the other hand economic woes, especially problems in Greece and the peripheral region around the more vulnerable economies in Europe seems to have waned. There is no case for gold to rally as news seems to be getting just better. And good news is always bad news for gold prices.

In fact, there is plenty of good news for stocks to rally. Corporate earnings in the US seem to be robust, while economic growth in China is gathering momentum and Europe, the centre of much of the problems in the last few years, seems to be doing better.

Against this backdrop it is difficult to see gold rallying. In fact, India which is the largest market for gold, has seen demand drop sharply, as the government looks to curb gold imports.

All in all, it looks unlikely that gold will rally anytime soon. On the other hand with easy liquidity conditions around the globe, expect equities to gain momentum even further.


Read more about: bse sensex, german dax, syria
Story first published: Monday, October 21, 2013, 8:44 [IST]
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