Gold is normally considered a diversifier to stocks, but in the first quarter the yellow metal was trading a bit more in lockstep with equities than usual.

Being an alternative asset, gold usually has a low correlation to stocks. The World Gold Council notes over the past 10 years, the average correlation of gold with U.S. equities and short-term cash bonds has been close to zero. But that wasn’t necessarily the case in the past few months.

Particularly in February when stock market volatility spiked, gold and stocks sometimes rose and fell together. One example was after the release of the February unemployment report showing rising wage growth. That news worried investors that the Fed would hike rates, sending bond yields higher and stocks and gold down. Yet other times, when inflation talk circulated the market, the two assets would sometimes rise. The correlation wasn’t constant or exact, but enough for investors on both sides to take notice.

Is the recent tighter correlation an outlier, or a sign of things to come? So far this year gold is modestly outperforming the broader market, with the SPDR S&P 500 Trust (SPY) exchange-traded fund down 1 percent through the first quarter, and the SDPR Gold Trust (GLD), the largest gold ETF by assets under management, up 1.73 percent.

Sean Lusk, director of commercial hedging for Walsh Trading, says two things helped propel stocks and gold together in the first quarter: the reflation trade and a weaker dollar. Talk of higher inflation supported many commodities, gold included, and a little inflation supports stocks, too. The dollar weakness also gave gold a lift. Being denominated in dollars, anytime the greenback softens it usually supports the yellow metal.

George Gero, managing director at RBC Wealth Management and a veteran gold trader, concurred. Gold doesn’t always have to have a low correlation to equities.

“Gold is a misunderstood asset,” he says. “Gold responds more to inflation in the longer term.”

He adds that gold had been out of favor of late because the stock market had been so strong.

“People did not need gold as an inflation hedge or safe haven,” Gero says.

No one is calling for runaway inflation, which is when gold really outshines stocks. But Lusk says with the volatility in stocks in the first quarter, and the talk of trade wars with the White House issuing steel tariffs and tariffs against China, attitudes toward gold may be changing.

After hitting its all-time nominal highs in 2011, and following a brief spike higher in 2012, gold prices were in a steady decline until 2016. Since then gold prices have muddled through, with little buyer interest outside of typical metal investors.

“There’s a general circus continuing in Washington and in February we had major gyrations in the stock market,” Lusk says. “I think investors started to say I might not want to be long metals yet, but I definitely don't want to be short. And that’s a bullish sign for gold.”

Trade wars are dollar-negative, says Jim Paulsen, chief investment strategist at The Leuthold Group. While a weak dollar could help export competitiveness, a trade war could increase import prices. “This would further increase inflation pressure, an issue already dominating the market’s attention,” he says. 

Frank Holmes, chief executive officer and chief investment officer at U.S. Global Investors, which also runs the U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU), expects the dollar to stay weaker and support gold, and he sees gold further strengthen this year. He also points to net gold purchases by central banks in 2017, particularly by China and Russia, a trend that could continue.

Although the Federal Reserve raised rates in March and is forecast to do so again later this year, those rate hikes are expected and aren’t likely to tarnish the metal. Gold showed its own mettle in March, rallying after the Fed rate hike.

If the dollar stays weaker and surprises continue to come out of the White House, gold’s role as a safe haven may reestablish itself, which means the traditional situation where equities and gold move in different directions may return. That happened after announcements by the Trump administration of tariffs on China, which torpedoed stocks and lifted gold.

“The price of gold is an economic and political barometer,” Gero says.