This Tuesday hit like a freight train for anyone who bought gold this year, thinking it was some magic shield, when prices saw their biggest single-day drop in 12 years, Cryptopolitan reported.
It was a brutal reality check for investors hoping gold would instantly save them when markets went south. But the crash doesn’t cancel out the bigger reasons people are hoarding gold. History shows that every time stocks tank (say, by 15% or more), gold usually drops first too, and this has happened six times before.
But here’s the catch: by the time the S&P hits bottom, gold ends up outperforming stocks by an average of 40 percentage points. Four out of those six times, it even posted positive returns, according to data from Bloomberg.
Investors dump gold ETFs as panic hits the market
The same Bloomberg data also shows that gold-backed ETFs fell by 0.3% to 98.6 million troy ounces on Wednesday, which was the worst daily drop since May.
Retail investors had been throwing money into bullion-backed ETFs, the easiest way for the average Joe to bet on gold without buying bars. Then the sell-off came, and those same people ran.
But you see, gold isn’t immune to stress. In a crash, people don’t just sell what they want; they sell what they can. And since gold is a liquid asset, it gets sold too, at least at first. That’s not a bug. That’s basic economics.
Unlike retail, central banks aren’t scared of a few red days. In fact, they’re buying more. A recent survey by the Official Monetary and Financial Institutions Forum found that nearly a third of 75 central banks plan to increase their gold reserves in the next one to two years.
They’re doing it to cut their exposure to US dollar-denominated assets. Makes sense. In a world where fiat money feels shakier, gold looks like the last man standing.
Another thing holding up prices is supply. There’s not much of it. And the big holders (central banks again) aren’t likely to flood the market anytime soon. They’re playing the long game, so they never need to sell. So while retail freaks out, central banks just chill.
Now, let’s talk about rate hikes. Yeah, they matter. Back in 2022, the S&P fell because people thought Fed tightening would kill earnings. At the same time, gold dropped too—because higher rates make non-yielding assets less attractive. But even then, gold still outperformed stocks by 18 percentage points. That’s not nothing.
What matters is what happens after the initial panic. Every time stocks take a beating, investors rotate. They dump risk and pile into safety: longer-term government bonds and, you guessed it, gold. That’s when gold does its job. But to get there, you’ve got to hold through the dip. No panic-selling. No whining. Just time.