Gold price movements are complicated to predict and tend to be tied to a multitude of factors including interest rates, currency movements, inflation, and even economic sentiment. Over short periods of time gold can outperform the broader market, although over longer periods it tends to underperform. That said, historically gold has provided a hedge against inflation and market weakness, as the asset tends to perform best amid times of stress and uncertainty.
Gold Is Rising to New All-Time Highs
Gold prices are hitting new all-time highs this year on the back of falling rates, rising economic uncertainty, and a weakening dollar. Even more interesting, after a period of relative stability from 2013 – 2018, gold has rallied sharply since 2019 (it was up ~18% in 2019) and has now surpassed its previous high from Summer 2011.
Gold Can Be Shiny, But Long-Term Investments In The S&P 500 Have Higher Returns
Despite the recent rally, historically the biggest outperformance from gold vs the S&P 500 occurs during periods of market stress and recessions (e.g. 2008, 1Q16, 2020), where gold has acted as a safe haven asset amid uncertainty.
Bottom Line: While gold has shown instances where it can outperform the S&P 500 over short-term time periods, timing the entry and exit are difficult. Over most rolling periods a passive investment in the S&P 500 tends to outperform a similar one in gold.
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A word on risk
All investments carry a certain degree of risk, including possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Equity investments are subject to market risk or the risk that stocks will decline in response to such factors as adverse company news or industry developments or a general economic decline. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Non-U.S. investments involve risks such as currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. This report should not be regarded by the recipients as a substitute for the exercise of their own judgment. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.