Gold rises, stocks often fall!
By Muhammad Irtash || LLB
Gold became the first commercial transaction tool in human history. The price of gold has beaten the dollar by about 48%. (Dawn News). At the same time, the world’s central banks have also shifted their savings and investments from dollars to the yellow metal, gold. Since the beginning of 2018, the price of the dollar has increased from $1160 to $4397, which is an increase of about 280%. In 1970, it increased by 2300%, while between 2001 and 2011, this price increased by 650%, which was a clear increase in the history of gold.
Why and how does the price of gold increase?
When the prices of daily commodities start increasing in the global market, investors prefer to buy gold because gold does not lose its value over time. Similarly, when the purchase of gold increases rapidly on one hand, its demand also increases in the global market. And when demand increases, its price also increases repeatedly.
Other factors that cause the price of gold to increase are as follows:
1. Inflation
When the prices of things increase in the country, people buy gold to save their money.
Example: If 10 kg of flour is available for Rs. 1,000 today, but only 7 kg is available for Rs. 1,000 next year, people think that “money is getting weak”, so they buy gold because gold does not lose its value over time.
2.Depreciation of the dollar
Gold is bought and sold in the world in US dollars.
When the value of the dollar is low, people from other countries can easily buy gold — this increases the demand for gold and the price goes up.
Example: If 1 dollar = 300 rupees decreases to 280 rupees, then buying gold will seem a little cheaper for countries like Pakistan, as a result, the demand for gold will increase worldwide.
3.Wars or worsening political conditions
When there are wars, conflicts or instability in governments in the world, people invest their money in a “safe” place, such as gold.
Example: If a war starts in a country, people withdraw money from the bank and buy gold so that their capital is safe.
4.Lower interest rates
When interest rates are low in banks, people consider it better to buy gold instead of keeping money there.
Example: If a bank is only giving 2% profit, people will say “Gold is better, at least its price can increase.”
5.Central banks buy gold
Central banks of countries like China, India and Russia store gold to keep their economies strong.
When these big countries buy more gold, gold becomes more expensive in the global market.
6.Decrease in gold extraction
If it becomes difficult to extract gold from mines, or production decreases, gold starts to seem scarce — and rare things always become more expensive.
What difference does a rise in the price of gold make on stocks?
What is the reason?
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- Investor Behavior:
When there are uncertain situations in the world — such as
🔸 war
🔸 inflation
🔸 or a weakening economyPeople sell risky assets (stocks) and buy safe-haven assets (safe-haven assets) like gold.
2. The result?
➤ Gold goes up 💰
➤ Stocks go down 📉
🧠 But why doesn’t it always happen?
Sometimes both gold and stocks rise together, especially when:
The economy is strong despite inflation,
Or the central bank lowers interest rates,
Or people are making different investments in different sectors.
Example:
There was a time in 2020 after COVID when
Gold was rising (safe investment),
And some stocks (like technology companies) were also rising.
Conclusion:
Under normal circumstances: Gold ↑ → Stocks ↓
But under special circumstances: Gold ↑ → Stocks ↑ (both rise)
