MW Why gold's plunge into a bear market is a good signal for stocks, according to Morgan Stanley

By Jamie Chisholm

Bullion's rise in previous months shows investors were wary of geopolitics, suggests Mike Wilson

The price of gold was down more than 20% from its peak early Monday.

Traders started the new week with markets yet again enveloped in a distinctly risk-off mood.

Bullion is definitely not behaving as a haven right now as the U.S.-Israel war with Iran rumbles on. At one point early Monday, the Nymex gold future (GC00) fell as low as $4,100 an ounce, down an unusually large 10% on the session.

It's now down as much as 23% from its closing high, meeting the technical definition of a bear market.

Analysts see two likely causes of the gold, and for that matter silver (SI00), selloff. In the run-up to recent highs precious metals had attracted a lot of individual investor speculation, with a surge of inflows into exchange-traded funds that track bullion. Wobbly markets are flushing out those gold and silver buyers.

Mike Wilson, Morgan Stanley's chief U.S. equity strategist, cites another reason; that certain governments might be selling or need to sell some of their gold to pay for the higher price of oil/commodities and/or subsidies to their citizens.

But whatever the cause of gold's decline, Wilson thinks it sends a positive signal for the stock market, if you accept that longer term, the bullion price tends to be positively correlated with geopolitical and market angst.

He looks at the ratio of the S&P 500 to gold price and finds that even with the stock market's recent 6.8% slide from record highs, it has jumped dramatically of late as gold has fallen even faster.

"Regular readers will recall our focus on gauge as a better measure of what stocks are really discounting and the overall/sustained health of an economy and corporate performance. It also correlates quite well with consumer confidence on a [year-over-year] basis and reflects the wide divergence between how people feel and the nominal price of the stock market that has confounded many," says Wilson.

In other words, and to simplify, a higher S&P 500/gold ratio implies investors are more upbeat about stocks and not so concerned about the kind of issues - inflation, deflation, geopolitical crises - that often boost bullion, and vice versa. Those of a contrarian bent may thus consider a very high ratio is signaling equity investors are too sanguine, while a dive in the ratio may mean they are too pessimistic.

When Wilson wrote his note he observed that the S&P 500/gold ratio had surged 12% since the conflict began three weeks ago. It's likely to go up even more given where S&P 500 and gold futures were trading on Monday.

Importantly, this new rally comes at the tail end of one of the most notable S&P 500/gold ratio declines, "suggesting markets are not complacent at all about geopolitical risks/concerns," he says.

This ratio has historically bottomed when the U.S. commits more forcefully to a major military conflict, according to Wilson. "Could we be witnessing the same dynamic at work today?," he asks.

The markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are lower as benchmark Treasury yields BX:TMUBMUSD10Y jump. The dollar index DXY is higher, while oil prices (CL.1) trade around $99 a barrel.

   Key asset performance                                                Last       5d       1m       YTD     1y 
   S&P 500                                                              6506.48    -1.90%   -5.83%   -4.95%  14.80% 
   Nasdaq Composite                                                     21,647.61  -2.07%   -5.41%   -6.86%  21.72% 
   10-year Treasury                                                     4.436      21.20    39.90    26.40   9.00 
   Gold                                                                 4298.8     -14.22%  -18.09%  -0.77%  42.46% 
   Oil                                                                  98.95      5.02%    49.27%   72.36%  43.07% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

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The buzz

A 48-hour deadline set by U.S. President Donald Trump for Iran to allow traffic through the Strait of Hormuz - or face the bombing of its energy infrastructure - will expire later on Monday.

Synopsys shares $(SNPS)$ are higher after the Wall Street Journal reported that activist investor Elliott Investment Management has built a multibillion-dollar investment in the chip-design software maker.

U.S. lawmakers will push a bipartisan bill banning sports bets on prediction markets, according to the WSJ.

U.S. economic data due Monday include the delayed report of construction spending for January, released at 10:00 a.m. Eastern.

Fed officials making comments include Gov. Stephen Miran interviewed on Bloomberg at 8:45 a.m.

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The chart

Why is the dollar DXY not rallying as much as might be expected during the war with Iran? After all, the U.S. is likely to be one of the main energy producers to benefit from surging oil prices. One reason, according to George Saravelos, Deutsche Bank's global head of FX research, is that the "optimal policy response for Asia and the Middle East is to run down FX reserves and excess savings held in dollars to finance their higher import bills." The second, as the chart shows, is that interest-rate differentials in this crisis are not moving in favor of the greenback. "Central banks are moving in a hawkish direction much more quickly," he says, with the Bank of England, Bank of Japan, Riksbank, and European Central Bank all delivering hawkish press conferences last week.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   TSM     Taiwan Semiconductor Manufacturing 
   MU      Micron Technology 
   SMCI    Super Micro Computer 
   GME     GameStop 
   AMD     Advanced Micro Devices 
   AMZN    Amazon.com 
   MSFT    Microsoft 
   AAPL    Apple 

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March 23, 2026 06:41 ET (10:41 GMT)

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