How do gold prices generally react in relation to common stocks?

Gold prices generally exhibit an inverse relationship with common stocks. When the stock market is performing well and investors are confident, they tend to prefer equities over gold, which is typically considered a safe-haven asset. Conversely, when the stock market is experiencing volatility or downturns, investors often flock to gold as a means of preserving wealth, driving its prices up. This behavior establishes a pattern where, in challenging economic times, gold often gains value as stocks decline, and vice versa, reflecting the risk appetite of investors at any given time.

This inverse relationship is rooted in the fundamental differences between these asset classes: gold is viewed as a store of value, especially in times of uncertainty, while stocks are considered growth assets with potential for higher returns during stable or thriving economic conditions. Hence, understanding this dynamic can help investors make informed decisions about asset allocation based on economic forecasts and market conditions.