Can you diversify your stocks portfolio with gold?

According to Chat GPT, historically, there has been an inverse correlation between gold and stock prices. But is this true across all stock exchanges? I looked at the case for Bursa Malaysia here.

Gold is often considered a safe-haven asset. During times of economic uncertainty, investors may flock to gold as a store of value. You may think that gold prices should be negatively correlated with the stock market. As such you should consider gold as a form of asset diversification for your stocks.

But is this true for a long-term investor in Bursa? The chart below shows the trends for the KLCI and Gold Prices for the past 20 years. You can see similar patterns. The correlation is 0.81.

I would say that given the high long-term correlation, gold is not a diversification asset for your Bursa portfolio. This is of course contra to the commonly held view.

Of course, the picture may be different for the short-term trader or other stock exchanges. But this is a story for another day.

Moral of the story? Look at the data from the stock market you are investing in.

For more insights go to “Are there Bursa proxies for gold?” at my blog i4value.asia.