Gold is shiny, alluring, and mostly pointless — it’s also crushed the stock market as an investment
Gold is hitting new highs as traders seek safe haven assets.
Anyone who has followed the market for any length of time will be unsurprised that gold — that shiny, malleable metal that humans have been obsessed with for millennia — has risen over the last week. When markets get skittish, investors seek out safe havens, and the escalating violence in Israel and Iran has been no exception, with the price of an ounce of gold coming close to its all-time high of $3,500 on Friday, up 3% in the last week and 8% over the last month.
But if gold offers some downside protection against war, economic risks, or even just more mundane threats like inflation, it stands to reason that over a longer time frame, it will have lost ground to the innovation machine that is the American stock market.
The paradox of gold, then, is that it has also crushed the US stock market over the last 25 years — a period of remarkable innovation and growth — rising more than 1,000% since 2000.
The S&P 500 Index has risen only 312% over the same time frame. Even adding dividends into the calculation doesn’t help stocks catch up, with the S&P 500’s total return coming in at only ~550% over the last 25 years.
This comparison is helped by the fact that the early 2000s happened to be a horrible period for stocks. But even more recently, gold has shone: it beat stocks last year, and is beating them again this year.
So, why is gold doing so well? It’s not soaring demand for shiny gold jewelry.
The fact that real interest rates have been low for much of that period explains a lot — you’re not “missing out” on holding a lump of gold if the alternative, like parking your cash in Treasurys or a bank account, isn’t very attractive. Most importantly, though, gold seems to have strengthened its identity as a safe store of value thanks in no small part to the crises of the age: the market turmoil of the dot-com crash, the global financial crisis of 2008, the pandemic and ensuing inflation — and, perhaps most critically, Russia’s war against Ukraine and subsequent sanctions, which caused some unease about holding US dollar assets in reserve compared to the shiny metal.
What doesn’t kill you makes gold stronger, I guess.
