The correlation between gold and equities is negative in most regimes: gold tends to rise when equities fall, precisely because it is perceived as a safe haven. However, in certain periods and under conditions of elevated uncertainty or abundant liquidity, that correlation can temporarily turn positive.
In the early 1970s, at a time when the Beatles were breaking up, Disney opened its first major theme park in Orlando, and The Godfather hit movie theaters, exactly that happened: both the S&P 500 and gold were making new all-time highs at the same time. What followed, however, marked an entire generation of investors, as it took the equity market almost seven years to return to its previous ATH.
This text is not meant to predict the outcome of today’s market, but rather to serve as a reminder to retail investors that during periods of such anomalies, it is important to think in regime terms: to be prepared for unfavorable scenarios, even while hoping for favorable ones.
Once Upon a Time, When Gold and the S&P Rose Together
The early 1970s represent one of the rare historical periods in which both gold and the S&P 500 reached new all-time highs simultaneously. Between May 1970 and January 1973, the S&P 500 rose by more than 75%, while gold recorded a gain of over 90% during the same period.
Although this may appear contradictory at first glance, the drivers of this simultaneous rise were different. In the background was a combination of high liquidity, rising inflation, and geopolitical uncertainty (oil, the Cold War, Vietnam), which led capital to seek both returns and protection at the same time. Gold was rising primarily as a hedge against accelerating inflation, a weakening dollar, and heightened geopolitical tensions, while equities experienced a liquidity-fueled advance before underlying fundamental problems became visible.
However, this was not a signal of a healthy risk-on environment, but rather a symptom of a regime in which investors were simultaneously buying risky assets and hedging against systemic risks.
How Did the Run End?
a) The Collapse of the S&P 500
In short, the early 1970s (especially 1973–1974) ended with a severe decline in equities, while gold continued to strengthen. The S&P 500 reached its peak on January 11, 1973, at around 120 points, after which a brutal bear market followed, lasting until October 1974. Over that period, the index lost approximately 48% of its value, falling to around 62 points.
The triggers of this decline were deeply systemic. The end of the Bretton Woods system and the so-called Nixon Shock in 1971 marked the severing of the dollar’s link to gold, leading to a devaluation of the dollar and a loss of confidence in the fiat monetary system. This was followed by the OPEC oil embargo in October 1973, which caused a fourfold increase in oil prices and triggered an energy crisis, recession, and the emergence of stagflation, which is a combination of high inflation, economic stagnation, and rising unemployment.
Faced with rising inflation, the Federal Reserve responded by raising interest rates, which further deteriorated economic conditions and placed significant pressure on equity valuations. Particularly hard hit were the extremely popular and overvalued “Nifty Fifty” growth stocks of the time, such as Polaroid and McDonald’s, which had been perceived as “safe” regardless of price.
The result was a deep recession between 1973 and 1975 and what is often later described as a “lost decade” for equities. While indices occasionally rose in nominal terms, the real value of equities (adjusted for the inflation of the time) declined by nearly 50% over the course of the 1970s. More importantly, it took the S&P 500 almost seven years to return to its previous nominal ATH.
b) The Golden Age of Gold
Unlike equities, gold continued its strong upward trend after 1973. In an environment of high inflation, a weakening dollar, and a general loss of confidence in the monetary system, gold functioned as a classic store of value. In less than a year and a half after the onset of the crisis, the price of gold rose by approximately 180%, confirming that in regimes of systemic stress, capital primarily seeks to preserve purchasing power.
Parallels and Differences with Today’s Environment
Over the past three (and somewhat more) years, the S&P 500 has risen by nearly 100% from its correction lows, while gold has recorded gains exceeding 180% over the same period. As more than half a century ago, gold is once again rising faster than equities, which in itself can be an important signal.
Today, this simultaneous rise of risk and safe-haven assets is again most often attributed to similar, if not identical, factors: elevated and persistent inflation (well above the 2% level for several years), pronounced geopolitical risks, a weaker dollar, and policies that implicitly favor a “run it hot” approach, through high levels of debt, fiscal stimulus, and tolerance of higher inflationary pressures.
However, this is precisely where the key point lies: the simultaneous rise of risky assets and protective assets is not a classic bullish signal. On the contrary, it more often points to a regime in which the market is still using liquidity to grow, while simultaneously buying insurance against systemic risks. This is an environment in which capital is not confident in the stability of the regime, but instead balances between the search for returns and the need for protection. Historically, such an environment more closely resembles a late-cycle phase or a transitional, risk-off–leaning regime than a healthy and sustainable risk-on one.
Conclusion
Historically, the simultaneous rise of gold and the S&P 500 has not been a benign signal. On the contrary, the example discussed above shows that such contradictory growth has preceded periods of serious stress for risk assets.
Today’s environment further reinforces that caution. The world is in an exceptionally turbulent period, with rising geopolitical tensions (Russia, the Middle East, Taiwan), an open struggle for global dominance between China and the United States, conflicts over energy (Venezuela) and rare minerals (Greenland), and the accelerated militarization of artificial intelligence. In this context, political leadership appears inadequate and detached from economic reality, a combination that does not inspire confidence in the stability of the system, even if these circumstances do not resemble any single historical precedent. Perhaps it is precisely this mismatch and absurdity that make a larger reset a plausible scenario, even though its form and timing remain unknown to me.
In addition, the indicators I follow suggest that current macro conditions continue to favor risk-off assets over risk-on ones (as I explain in more detail in this text). For all of these reasons, my investment decision is directed toward what I consider a risk-off asset in this regime: my choice is Bitcoin. And not because it is not volatile (of course it is!), but because, despite its high volatility, it has consistently delivered better returns than most other asset classes over the past several years. Whether such returns too are merely a byproduct of the crazy times we are witnessing, and whether I am making a huge capital-preservation mistake by holding it, remains an open question that only time will be able to answer.
For investors who do not have the stomach for that level of volatility, I believe that holding gold can currently offer more peaceful nights than exposure to BTC. Of course, this is not financial advice, but rather a form of thinking out loud and the way I currently shape my own investment strategy. History offers many lessons, but it rarely repeats itself in exactly the same way.
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Thank you for your attention. 🍻