Hang Seng Index and Gold
The relationship between the Hong Kong stock market and the gold price is not widely debated. The standard view is that the yellow metal is linked to the U.S. equity market, if at all. So let’s analyze the link between the price of the yellow metal and the Hang Seng Index.
As the chart below shows, there is a positive correlation between the two, and it is actually quite strong (about 0.75). In particular, there was a bull market in both gold and the Hong Kong equity market in the 2000s, interrupted by a correction after the bankruptcy of Lehman Brothers.
Chart 1: Gold prices (yellow line, left axis, London P.M. Fix, weekly averages) and the Hang Seng Index (green line, right axis, weekly averages) from 1987 to 2017.
However, after the 2000s, the correlation turned out to be negative (about -0.48), which implies that the link between HSI and gold is complex and changes over time.
Hang Seng Index and Silver
As one can see in the chart below, there is also positive correlation between silver prices and the HSI (it should not be surprising, given that silver prices are very closely linked to gold prices), although weaker than in the case of gold (about 0.60). The clearest period of co-movement were again the 2000s, but there were also periods of negative correlation or independent behavior, for example due to different specific developments in the silver market (see: Silver Thursday).
Chart 2: Silver prices (blue line, left axis, London Fix, weekly averages) and Hang Seng Index (green line, right axis, weekly averages) from 1987 to 2017.
To sum up, gold and silver often act as safe-haven assets and portfolio diversifiers, but against crashes in the U.S. stock market rather than in its Hong Kong counterpart. The best example may be Asian financial crisis in the late 1990s. Although the HSI plunged almost 60 percent within a year, the stock market crash did not result in a gold/silver bull market. Hence, investors should always analyze the big picture when investing in precious metals, as traders often resort to U.S. Treasuries rather than precious metals during crises in developing countries.
We encourage you to learn more about the precious metals market – not only about the link between the HSI and gold and silver, but also how to successfully use both silver and gold as an investments and how to profitably trade them. A great way to start is to sign up for our gold newsletter today. It’s free and if you don’t like it, you can easily unsubscribe.