According to Sharma, trillions of dollars of stimulus unleashed during and after the pandemic are still circulating, driving momentum trades across multiple asset classes. “Govts and central banks rolled out trillions of dollars in stimulus during and after the pandemic. Much of that money is still sloshing around the system and continues to drive the momentum trade across many assets, including stocks and gold,” he wrote.
U.S. households have increased exposure to equities and other risk assets in recent years, emboldened by a near-assured state safety net. “Investors have been conditioned to expect a state rescue at the slightest hint of trouble… By sharply lowering the risk premium, state support effectively opens the liquidity floodgates,” Sharma noted.
Hyper-financialisation 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 markets, driving asset prices across the board.
A historic pairing
The result is a rare alignment: gold and stocks rising together. Historically, the correlation between these two assets has been near zero. In the 1970s, gold surged while equities languished, while in the 1990s dotcom boom, gold fell as stocks soared. Now, both are buoyed by the same underlying driver: excess liquidity.
Sharma highlighted another dimension, that gold’s bull run became particularly strong in 2022 when U.S. sanctions on Russia pushed foreign central banks to buy gold as a safe alternative. Today, however, gold ETFs are driving much of the demand, with ETF share of gold demand rising ninefold this year to nearly 20%.
“The centre of the buying action has moved from central banks to gold ETFs… The third quarter saw the highest quarterly ETF flows into gold, ever,” he wrote.
Market reality checks
Despite these macro drivers, gold has come under pressure this week. On Thursday, gold and silver corrected sharply from recent highs, with gold falling nearly 10% from $4,381 per ounce and silver from $54.5 per ounce. Analysts attribute the pullback to profit booking, 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 near $4,000 and seasonal demand expected to soften post-festive season.
Rahul Kalantri, VP Commodities at Mehta Equities, noted that the correction reflected a rotation toward risk assets amid optimism over U.S.–India trade developments. “Gold and silver prices stabilized around $4,050 and $48 per ounce after a sharp correction… The pullback reflected a shift toward risk assets… weakening gold’s safe-haven demand,” he said.
Support and resistance levels for gold suggest a more balanced outlook, 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.
Equities mirror liquidity
Meanwhile, Indian equities continue to climb. The Nifty 50 was just 0.7% below its all-time high on Thursday, while the Sensex touched 85,272.40, about 0.8% shy of its record. Optimism stems from an earnings revival, foreign inflows, strong festive-season demand, recent tax cuts, and policy support expected to drive corporate profits higher in the second half of FY26.
Sharma warned that the party may not last indefinitely, cautioning that if consumer price inflation accelerates and the Fed is forced to tighten, gold’s role as a hedge could backfire, sending both AI-driven stocks and gold tumbling together.
For now, however, liquidity remains the ace in the global markets’ hand—driving an unusual, high-stakes duet between gold and equities.
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)