The correlation between the U.S. stock market capitalization-to-GDP ratio and gold prices appears to be shifting. Since mid-2023, both the market cap/GDP ratio and gold have been rising together. 

The first sign of this correlation shift emerged after Trump secured the presidential race. Although there was a brief period of turbulence, the correlation seemed to normalize shortly afterward. However, everything changed with the start of March. The stock market suffered significant losses, while gold surged past 3100 and is now heading toward 3200. 

(US Stock Market Cap to GDP vs Gold) 

The chart above shows the 10-day moving averages of the market cap-to-GDP ratio and gold prices. We used moving averages to smooth out short-term noise and better highlight underlying market trends. Over the past two years, the correlation between the two has been strong, around 85%, indicating a consistent, same-direction relationship. 

Despite high interest rates, financial conditions remained relatively loose throughout 2023. Inflation was gradually slowing but still elevated, and economic activity and growth held up well. These conditions supported both the stock market and gold. 

However, with Trump returning to office, uncertainty surged, particularly around global trade flows. Growth forecasts weakened, early signs of slowing activity appeared, and economic confidence collapsed. Some argue that market reactions were exaggerated and irrational, but as the saying goes, “market is always right, even when it is wrong.” 

In any case, equity markets reacted sharply to the new environment, with one of the largest selloffs in history. As stocks plunged, gold’s safe haven appeal came back into focus, and its rally resumed. This divergence has led to a breakdown in the previously strong correlation between gold and the market cap-to-GDP ratio in recent weeks. 

Now the key question is: will this divergence prove temporary, with the correlation reestablishing itself or has a lasting shift in market dynamics begun? 

(XAUUSD) 

The chart above displays gold prices on a logarithmic scale. Given the parabolic nature of gold’s recent trend, we chose a logarithmic scale to better capture the curve in a more linear fashion. Even with this adjustment, gold has now broken above the upper boundary of its long-term logarithmic trend channel. 

The key level to watch is 3000, the upper line of the broken trend channel. If the recent divergence between the stock market and gold is to reverse, while  equities recover gold may pull back toward the 3000 level and potentially move down to the lower boundary of its shorter-term trend channel. 

However, risks surrounding global trade remain elevated, despite Trump’s 90-day tariff pause. Confidence in the U.S. has eroded significantly by its allies and trading partners. Ultimately, the market will decide whether to focus on short-term optimism around trade negotiations or the longer-term uncertainties tied to a potential restructuring of the global economic order.