Gold vs S&P 500: Which is Better for 2022 and Beyond?

Written By Colin Kuehn  |  Gold 

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There are many ways to compare gold and the S&P 500. This article will explore the historical performance of these two investments. It will also explore how the two have fared during periods of inflation. Ultimately, you must make an educated decision about which to buy. But first, let's look at some of the key differences between the two.

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Key Differences Between Gold & S&P 500

A comparison of the performance of gold and the S&P 500 can be revealing for investors. While the two have similar growth rates, the S&P 500 has outperformed gold in the past. In fact, the S&P 500 has a much lower beta than gold. Gold, by contrast, has a beta of around 0.5, a relatively low value compared to the S&P 500.

However, while S&P 500 is a broad market index, gold is a commodity that pays no dividends or interest. That means that investors are speculating on future demand for gold, so its prices fluctuate more than the S&P 500. Unlike the S&P 500, which has a logarithmic Y-axis, gold is more volatile than the S&P 500.

Gold's correlation to the S&P 500 is 0.25, which indicates a slight positive correlation. While the correlation coefficient can't predict future stock returns, it can help investors understand diversification. This is a fundamental part of managing an investment portfolio.

an investment chart perched above two gold bars

How Gold has Performed Historically

If you're looking to invest in gold for the long term, it's important to understand how it's performed historically in relation to the S&P 500 index. From 1990 to 2020, the correlation between the S&P 500 index and gold prices has been -0.18 and -0.3%, respectively. While gold has underperformed the S&P by an average of 2.9 points over this period, it has provided a useful diversification and has generally added to portfolio returns when stock market prices faltered.

The 1970s were another good decade for gold. The dollar price of gold in 1971 appreciated to $8.91 in real terms by January 1980, reaching an all-time high of $850 an ounce. This represents a 27% annual return, though that return was achieved under very special circumstances.

Gold has also outperformed inflation over the long run. Depending on the time period used, it has outperformed the CPI in some periods, but not others. In fact, it's more volatile than the CPI. Over the last fifteen years, the standard deviation for gold is over 19 percent, while that of the CPI is just 1.2%. This means that gold is about fifteen times more volatile than the CPI.

s and p historical chart

How the S&P 500 Has Performed Historically

The S&P 500 has delivered strong returns over the long term. Its annualized return has fluctuated over the last four decades, but has generally been in the range of six to eight percent. Since 1928, it has had only four years in which the index experienced a loss. Even when it has returned negative annualized returns, it is still far higher than the rate of inflation.

One source that shows the S&P 500's compound returns is Bloomberg, a financial news and research service. They offer daily data for the S&P 500 index from September 16, 1991, through September 15, 2021. Since the S&P 500 is an index of stocks, its results do not reflect actual trading, reinvesting of dividends, or any other factors that could affect the actual price.

While these statistics may seem positive, there are a number of things that can cause stocks to fall. Since the mid-nineteenth century, the S&P 500 has suffered its worst months in September and October. That is because stocks tend to rise in November, and fall during October.

Should You Invest in Stocks or in Precious Metals?

While gold has historically outperformed stocks, it hasn't done so consistently. The chart below compares the real returns of investments in gold and equities over the past 65 months. Over that period, gold has underperformed equities on average by 2.9 percentage points. Still, it has proven to be a useful diversifier, and has historically added to portfolio returns during times of economic uncertainty.

There are several key differences between gold and stocks. In a stock, you own a portion of a company. Stocks grow in value over time. When a company's stock earns dividends, the investor's ownership percentage increases. While buying gold is more risky, investing in stocks is a safer bet for investors.

On the other hand, gold doesn't perform as well when stocks are on a bull run. In addition, gold isn't an income-producing asset and isn't a proxy for growth in a specific company. Gold's value comes from its relative scarcity and its socio-historical precedent as something of value. In contrast, stocks perform well when the economy is growing.

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Why You Should Always Talk to a Financial Planner

While investing in gold is not as risky as investing in stocks, there are some risks associated with this strategy. Gold is not a good investment for all investors, and it may be better to diversify your portfolio. While some experts, including Warren Buffett, have said that gold has no place in a modern portfolio, other experts insist that it is worth putting a small portion of your portfolio in this asset.

Investors can invest in gold indirectly through buying gold-based securities and owning physical gold assets. Gold jewelry, for example, is generally mixed with other metals and is valued in the same way as a gemstone or collectible. While physical gold investments are possible, most investors prefer to invest in securities. One of the main drawbacks of owning physical gold assets is the need to store them.

The value of gold fluctuates, and a large price swing can affect your returns. The 1970s saw a massive run-up in gold. It climbed by more than nine percent in that time span. However, this return was not enough to beat inflation. During the same time, inflation had shot up to 53 percent. As a result, the general public barely noticed the gold's performance.

Reasons to Consider Augusta Precious Metals

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Augusta Precious Metals is a premier provider of investment services for gold and other precious metals. Their investment experts are highly experienced and knowledgeable and they have received high ratings from the Better Business Bureau and Business Consumer Alliance. Augusta's team of agents focuses on helping clients make informed decisions and does not employ high-pressure sales tactics. Investing in precious metals is a significant financial commitment, and Augusta requires a minimum investment of $50,000.

Augusta Precious Metals has received a top ranking from the Better Business Bureau, an organization that rates companies on a points-based system. Any incidents involving a company's practices that can lead to untrustworthy behavior will deduct points from its overall rating. For this reason, Augusta Precious Metals is an excellent choice for an IRA.

Augusta Precious Metals can help retirees invest in a gold IRA, silver IRA, or self-directed IRA. The company has been in business for more than 10 years and has excellent customer ratings. They are also members of the Better Business Bureau and the National Ethics Association.

Summary

The S&P 500 and gold have a complex relationship. In the past, this relationship has been relatively stable, but recently, the relationship between the two has turned negative. This could portend the continuation of the downward trend in stocks. Meanwhile, the latest Federal Reserve economic projections paint a bleak picture of the US economy for the next year, which includes higher interest rates, higher unemployment, and sticky inflation. As a result, profit margins for US companies will be under extreme pressure.

The gold price has historically outperformed the S&P 500 by at least 20 points per year. This outperformance has occurred a total of 65 times since 1990. However, it has tended to occur during periods of crisis, such as the financial crisis or the COVID crisis. In the past decade, gold has generally lagged behind stocks, and only slightly outperformed equities in all but two of these periods.

The gold price has remained above the $1,850 barrier in recent months, which is a critical resistance level for the gold market. The S&P 500, on the other hand, has been struggling. The broad-equity market index has struggled throughout the year, and there is a growing chorus of negative sentiment among market analysts and economists. Many analysts are calling for stocks to remain significantly lower for the remainder of the year.