If both gold and stocks are rallying, does it mean trouble for investors?

Global markets are trading cautiously ahead of U.S. Federal Reserve Chair Jerome Powell’s policy announcement due later tonight. While equities continue to hover near record highs on optimism around an expected rate cut, gold prices are also moving higher, suggesting that investors are positioning defensively and seeking safety even as risk assets rally.

This unusual combination, rising stock prices alongside firming gold, is seen as a sign that, beneath the bullish exterior, market participants are preparing for potential volatility or economic uncertainty in the coming months.

The outcome of the Fed’s meeting, which is expected to deliver a rate cut, is also being closely watched not just for the decision along but also for Powell’s commentary on the trajectory of future cuts, a key signal for the months ahead.

Why investors are turning to gold despite equity gains?

• Heightened Global Debt Levels: Concerns over ballooning government debt and expectations of higher money supply are prompting investors to park funds in safe-haven assets like gold.
• Softer U.S. Dollar: The dollar index has softened ahead of the Fed decision, making gold more attractive for investors globally and boosting demand.
• Diverging Central Bank Policies: With the U.S. Fed likely to cut rates, while other central banks take a more mixed stance, currency markets are on alert — and gold offers a hedge against volatility.
• Portfolio Rebalancing: Fund managers and retail investors alike are allocating more to gold to offset potential drawdowns in risk assets.
• Geopolitical & Trade Risks: Continued global political and trade tensions are keeping safe-haven buying elevated, even in a generally bullish market backdrop.

What investors are watching?

Traders and investors will be focused on Powell’s remarks for cues on how aggressive the Fed plans to be with rate cuts in the months ahead.

A dovish message could fuel further gains in both equities and gold, while any hint of caution might trigger volatility across asset classes.Also read: US Fed set to cut rates by 25 bps today, Nifty bulls await FII U-turn

In addition to the Fed outcome, attention will remain on the U.S. dollar and bond yields. A sustained decline in yields could keep gold prices supported, while a dollar rebound may cap the upside in the near term.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)