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Gold is having its best year in decades but it’s happening at the wrong time, according to history.
The metal is often seen as a fear gauge, a hedge against risk and panic that fluctuates based on economic confidence. That’s why it tends to alternate strong and weak years with equities.
This year, though, gold is outpacing the S&P 500 by 35 percent — one of its widest margins since the financial crisis. Historically, that kind of move has only happened during moments of stress:
- 2008 housing crash
- 2011 euro-zone debt panic
- 2020 pandemic
But right now gold is surging while the S&P 500 enters its third year of a bull run.
Gold is beating stocks by about 1.5 standard deviations above its long-run average, making this moment a statistical anomaly, according to DataTrek Research.
“Not only is gold’s recent performance versus the S&P unusual in terms of magnitude, but it is also coming at the ‘wrong’ time in an investment cycle,” said DataTrek co-founders Nicholas Colas and Jessica Rabe.
“There is no analog to this price action over the last two decades.”
Indeed, the S&P 500 is having a better-than-expected year with a 14.7 percent return, but gold is up almost 50 percent.
During past cycles, gold only climbed when investors sought out safety. But somehow right now, with risk-assets booming and Big Tech ruling the market, gold and stocks are making record highs simultaneously.
There are a few reasons for this:
- Global central banks have ramped up gold purchases
- Retail investors are piling into gold
- Demand for gold ETFs is booming
It seems, then, that the appetite for gold during the equity bull market is a consequence of investors seeking diversification in their optimism.
Rather than hedging risk like usual, they want as many winners as possible in their portfolio. That in itself seems to signal an overabundance of confidence in the current outlook.
“[G]old is dramatically outperforming at a time when history says it should be languishing,” Colas and Rabe said.
Phil Rosen
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