When stock and bond values fall, investors buy gold. Gold has long been an inflation hedge that protects purchasing power. The yellow metal became a safe-haven asset because it is the most durable of the precious metals and holds its value well.
The value of fiat currencies (currencies not backed by gold), in contrast, fluctuate with inflation, trade balances, and other factors.
Since gold has a low correlation with the US dollar and other currencies, it is an ideal inflation and currency depreciation hedge. When product prices rise, inflation rears its head, and your US dollars’ purchasing power decreases. In contrast, a $1,000 gold bar will rise in value and thus have more purchasing power than a $1,000 US bill.
So, it’s no coincidence that the last three major gold price spikes coincided with oil price hikes (1979), the global economic recession (2011), and the coronavirus recession (2020).
In all three cases, gold prices soared as investors placed their money in gold as a safe haven. Gold is a highly liquid asset that can be quickly converted into cash.