Gold vs Stocks: Which Is Better?
It's not an either/or question. Gold and stocks serve different purposes in a portfolio. Here's what history tells us about when each shines.
The Short Answer
Over the very long term, stocks outperform gold. But gold shines during specific periods—market crashes, high inflation, currency crises. That's why both belong in a diversified portfolio.
Gold is insurance. Stocks are growth. You need both.
Historical Returns Comparison
| Period | Gold Return | S&P 500 Return | Winner |
|---|---|---|---|
| 1971-2024 (54 yrs) | +7,400% | +17,000% | Stocks |
| 2000-2011 (Lost Decade) | +560% | +7% | Gold |
| 2011-2020 | +46% | +214% | Stocks |
| 2020 (COVID crash year) | +25% | +16% | Gold |
| 2022 (Rate hike year) | -0.3% | -19% | Gold |
Key Insight
Stocks win the long race, but gold wins specific laps—often when you need protection most. The "lost decade" (2000-2011) saw stocks go nowhere while gold rose 560%.
Fundamental Differences
Gold
- Returns from: Price appreciation only
- Income: None (no dividends)
- Value source: Scarcity, store of value
- Counterparty risk: None
- Best during: Crises, inflation, dollar weakness
- Tax rate: 28% (collectibles)
Stocks
- Returns from: Price + dividends
- Income: Dividends (reinvested compound)
- Value source: Business earnings growth
- Counterparty risk: Company bankruptcy
- Best during: Economic growth, low inflation
- Tax rate: 15-20% (long-term gains)
When Gold Outperforms
1. Stock Market Crashes
In 2008, the S&P 500 fell 37%. Gold rose 5%. When stocks crater, gold often holds or rises.
2. High Inflation Periods
1970s stagflation: Gold rose 2,300% while stocks went sideways. Gold protects purchasing power when inflation runs hot.
3. Currency Crises
When confidence in fiat currency drops, gold soars. Every major currency crisis has seen gold outperform.
4. Geopolitical Chaos
Wars, pandemics, political instability—investors flee to gold's safety. No earnings to worry about.
When Stocks Outperform
1. Economic Expansion
Growing economy = growing corporate profits = rising stock prices. Gold languishes when optimism reigns.
2. Low/Stable Inflation
When inflation is under control, gold's hedge value diminishes. The 2010s saw low inflation and stock dominance.
3. Rising Interest Rates
Higher rates make yield-bearing assets attractive vs. zero-yield gold. 2022's rate hikes hurt gold initially.
Correlation: The Diversification Benefit
The key insight: Gold and stocks have low (sometimes negative) correlation. When stocks zig, gold often zags.
Historical correlation: Approximately 0.0 to 0.2 over long periods. During crises, often negative (gold up, stocks down).
This low correlation is why even a small gold allocation (5-10%) can reduce portfolio volatility and improve risk-adjusted returns.
The Optimal Approach
Own Both—In the Right Proportions
- • Core portfolio: Stocks (and bonds) for long-term growth
- • Insurance allocation: 5-15% in gold for protection
- • Rebalance: When gold spikes, sell some. When it drops, buy more.
- • Don't try to time: Own both continuously
Historically, portfolios with 5-10% gold have had similar returns to 100% stock portfolios—but with lower volatility and smaller drawdowns.
Bottom Line
- • Long-term: Stocks beat gold (but not always)
- • During crises: Gold beats stocks
- • Best approach: Own both for diversification
- • Gold's role: Insurance, not your whole portfolio
- • Recommended: 5-10% gold allocation