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Gold vs. Stocks: Which Has Performed More Consistently? Thumbnail

Gold vs. Stocks: Which Has Performed More Consistently?

Paul Tarins, RICP®,WMCP®,CSRIC™

When it comes to investment management and asset allocation, it is essential that you include diverse and non-corelated assets in your portfolio. This can allow you to ensure stable income generation amid changing economic conditions and protect your financial health. While there are various assets that can be discussed here, we will primarily focus on the inclusion of gold vs. stocks in your portfolio and examine which asset delivers a more consistent performance. 


Gold vs. Stocks: How Do They Function? 

Stocks represent an ownership share in a company. Companies sell stocks to raise money, which is then used for conducting business operations and other initiatives. 


There are two ways to earn a return on your investment if you buy a company’s shares. When you buy a stock, you can wait for its price to appreciate and then sell it to earn a profit. However, if you plan to hold the shares long-term, then you can also earn a return through dividends. These are periodic payments that a company makes out to its shareholders. They are made using the company’s revenue. Not every company will pay a dividend. 


Gold is a commodity that can be included in an investment portfolio to safeguard investors from declining markets. Its price usually does not move with paper investments such as stocks and bonds. Unlike stocks, gold is not considered an income-generating asset. You can earn a return here solely based on price appreciation. To invest in gold, you can buy gold bullion, coins, and jewelry. You can also invest in gold mutual funds and gold ETFs. Since gold is also a physical asset, you need to bear insurance and storage costs.  

When Can Gold Outperform Stocks? 


Gold and stocks tend to be negatively correlated with each other. Typically, some of the factors that influence the price of gold include inflation, appreciation or depreciation in dollar value, interest rates, and stock market crashes. 


When inflation rises in an economy, the value of currency declines, and the price of gold increases. Similarly, research suggests that stock market crashes are negatively correlated to an increase in the price of gold. Let’s review some of the biggest declines in the S&P 500 and how they affected the price of gold:





Most Significant Declines in S&P 500

S&P 500 Performance 

Gold Performance 

Sep 1976 – Mar 1978



Nov 1980 – Aug 1982



Aug 1987 – Dec 1987



Jul 1990 – Oct 1990



July 1998 – Aug 1998



Mar 2000 – Oct 2002



Oct 2007 – March 2009



May 2011 – Oct 2011




Source: goldsilver.com 

As observed, gold outperformed stocks during most market crashes. The only period when the value of gold fell significantly during a stock market crash was in the 1980s. This is mainly because gold saw its biggest bull market between 1969 and 1980, where its value increased from $49 per ounce to $2,234 per ounce (current USD value). A decline was naturally expected. Interestingly, the stock market remained relatively flat in this period, and its average rate of return increased by 15.09% during 1970-1980.


Gold’s value also rose significantly during the 2008 global financial crisis. As per Forbes, the price of gold appreciated from $65 per ounce in 2006 to $180 per ounce in 2011, and it outperformed stocks. 

What Are The Historical Returns On Gold and Stocks? 


Usually, stocks perform better than gold during periods of economic stability and growth. Gold, on the other hand, benefits from economic crises that create fear among investors. Let’s review the historical returns on gold vs. stocks to see which asset has been more consistent:



We can assume that in the long term, stocks can outperform gold. However, if you are considering shorter time horizons gold can outperform.

How Can You Use Gold As A Hedge Against Inflation?

As mentioned earlier, the price of gold increases during periods of inflation when the cost of living increases. Consequently, investors can possibly use gold as a hedge against inflation. This is primarily because the purchasing power of fiat currency decreases during inflation. As a result, the cost of an ounce of gold in dollars will increase. 


Other assets can suffer during inflation. For example, if you purchase stocks delivering a 5% return, but the inflation rate is at 7%, you incur a loss of 2%.


Gold also has a positive price elasticity. As the demand for gold increases, its price also goes up. 

Wrapping It Up

When it comes to gold vs. stocks, both can have a place in your overall asset allocation. Gold tends to be more consistent during periods of economic distress. On the other hand, investing in the stock market has delivered higher returns in the long term.   

If you are interested in comprehensive investment management, then we suggest you focus more on building a diversified portfolio that includes stocks, as well as gold. This allows you to have a hedge during periods of economic instability and recession. How much gold should be included can depend on your overall view of the current and future economic conditions. No one has a crystal ball, but it does seem the consensus has been somewhere between 5%-10% of gold included in a portfolio may be worth considering. 


Paul Tarins is an investment adviser representative of and offers investment and advisory services through Portfolio Medics,a registered investment adviser. Nothing contained herein should be construed as a solicitation for investment advisory services. Sovereign Retirement Solutions and Portfolio Medics are not affiliated.