According to Sharma, trillions of dollars in stimulus measures unleashed during and after the pandemic are still circulating, driving momentum trades across multiple asset classes. “Governments and central banks rolled out trillions of dollars in stimulus during and after the pandemic. Much of that money is still sloshing through the system and continues to drive momentum trading in many assets, including stocks and gold,” he wrote.
U.S. households have increased their exposure to stocks and other risky assets in recent years, backed by a virtually assured government safety net. “Investors are conditioned to expect a government bailout at the slightest hint of trouble… By sharply lowering the risk premium, state aid effectively opens the floodgates of liquidity,” Sharma noted.
Hyperfinancialization also amplifies this effect. The proliferation of trading apps and largely commission-free investment vehicles has made it easier than ever for individuals to pour money into the markets, driving up asset prices across the board.
A historic couple
The result is a rare alignment: gold and stocks rise together. Historically, the correlation between these two assets has been virtually zero. In the 1970s, gold rose while stocks languished, while in the 1990s, the dotcom boom saw gold fall while stocks rose. Now both are supported by the same underlying driver: excess liquidity.
Sharma highlighted another dimension: Gold’s bull run became particularly strong in 2022, when US sanctions on Russia prompted foreign central banks to buy gold as a safe alternative. Today, however, gold ETFs provide much of the demand, with ETFs’ share of gold demand increasing ninefold this year to almost 20%.
“The center of buying action has shifted from central banks to gold ETFs… Q3 saw the highest quarterly ETF flows into gold ever,” he wrote.
Market reality checks
Despite these macro factors, gold has come under pressure this week. On Thursday, gold and silver corrected sharply from recent highs, with gold down nearly 10% from $4,381 per ounce and silver from $54.5 per ounce. Analysts attribute the decline to profit bookings, seasonal factors and easing geopolitical tensions.
Tejas Shigrekhar, Chief Technical Research Analyst at Angel One, said: “Gold witnessed a sharp decline of 385 points (8.00%) from its recent peak, marking a potential trend reversal after reaching historically overbought levels.”
Shigrekhar added that technical indicators now reflect a bearish shift, with spot prices trading around $4,000 and seasonal demand expected to soften the post-festive season.
Rahul Kalantri, VP Commodities at Mehta Equities, noted that the correction reflected a rotation into risky assets amid optimism over US-India trade developments. “Gold and silver prices stabilized around $4,050 and $48 per ounce after a sharp correction… The pullback reflected a shift towards risky assets… weakening demand for gold as a safe haven,” he said.
Support and resistance levels for gold indicate a more balanced picture, with domestic gold at Rs 128,270 on the MCX, support at Rs 121,000–115,000 and resistance around Rs 130,200–134,500.
Stocks reflect liquidity
Meanwhile, Indian stocks continue to rise. The Nifty 50 was just 0.7% below its all-time high on Thursday, while the Sensex touched 85,272.40, about 0.8% below its record high. The optimism comes on the back of a rebound in earnings, foreign inflows, strong demand during the festive season, recent tax cuts and policy support that is expected to lift corporate profits in the second half of FY26.
Sharma cautioned that the party may not survive indefinitely, warning that if consumer price inflation accelerates and the Fed is forced to tighten, gold’s role as a hedge could backfire, causing both AI-powered stocks and gold to collapse.
For now, though, liquidity remains the ace in the hand of global markets, creating an unusually high-stakes duet between gold and stocks.
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(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of the Economic Times)
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