The Gold Rush: What’s Happening with Gold Today?

For those who might not have noticed, gold has been glittering brighter than usual. The precious metal is up over 50% year-to-date, leaving the S&P 500's 18% increase in the dust. This surge has left some investors questioning the wisdom of sticking with stocks.

A viral chart I came across recently compared the growth of $1 invested in gold versus the S&P 500 since January 2000. As you can see, gold has outperformed the S&P 500 by nearly 2x since 2000. This makes one wonder—if a shiny rock can beat productive businesses, why bother with stocks?

However, this comparison is a bit misleading. Back in 2000, U.S. stocks were at their peak bubble during the DotCom boom, while gold was at a low point. It's like comparing Mike Tyson to Jake Paul—one was past his prime, and the other wasn't.

On the flip side, if we start the comparison in January 2012, when gold hit new highs, the S&P 500 outperformed gold by 2.7x.

So, is gold a better investment than stocks? The answer is complex. Over long periods, U.S. stocks generally outperform gold. Yet, there are times when gold shines, like in the 1970s, when it soared 1,365% while stocks only rose 76%.

Today, gold is soaring again, but U.S. stocks aren't faltering. The current investment climate isn't reminiscent of the 1970s or 2000s. So, what's happening? As Warren Pies noted, the fear of losing purchasing power is replacing the fear of losing principal. With concerns about the U.S. dollar's stability, investors are flocking to assets like gold, traditionally seen as inflation hedges.

The World Gold Council reported record inflows into gold ETFs, with central banks holding more gold than U.S. Treasuries for the first time since 1996.

Ironically, while gold is bought as an inflation hedge, it hasn't been the best performer during high inflation periods. Historically, assets like REITs and equities have offered better real returns when inflation exceeded 4%. During recent inflationary periods, gold's performance was flat.

Despite this, gold's price is climbing as more buyers than sellers emerge. The reasons range from a weakening dollar to geopolitical uncertainties. Whether this will push gold into bubble territory remains to be seen. Historically, gold moves in cycles of rapid gains followed by stagnant periods, which not every investor can endure.

My relationship with gold has been a rollercoaster. I once abandoned it after examining its data but reconsidered its role in a diversified portfolio. The World Gold Council highlights gold's ability to reduce portfolio volatility and improve the Sharpe ratio. A StateStreet analysis from 2005-2025 showed that a small gold allocation increased returns while decreasing volatility.

In conclusion, a touch of gold in a portfolio can be beneficial, although its performance can be unpredictable. As gold continues its upward journey, only time will tell if it will maintain its shine. Until then, happy investing!

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