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.
ENDNOTES
Disclosures
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.
The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
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.