Which Has More Staying Power, Stocks or Gold?

When gold and stocks trade in the same direction, it bodes well for stocks

Senior Quantitative Analyst
Apr 17, 2024 at 8:00 AM
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Despite the impressive performance from stocks in recent months, it pales in comparison to gold. Prior to the recent pullback, stocks had surged by more than 10% in the preceding three months and by over 20% in the past six months. Conversely, gold prices have soared by more than 15% in the last three months and by over 25% in the preceding six months. That’s a lot of money flowing into what is often considered competing asset classes. This week, I’m looking into past instances when stocks and gold surged higher together to see if history has tended to favor one or the other going forward… or both or neither.

SPX Gold

Gold, Stocks Flying High Together

Going back to 1980, I found times that the S&P 500 Index (SPX) and gold both shot up at least 10% over a three-month period. There were 16 prior instances, with the last time occurring this past December. The table below summarizes the S&P 500 returns after these instances. Stocks tended to outperform their baseline after these occurrences in each of the timeframes studied from one month to a year out. For example, six months after these two assets rally 10% over a three-month period, the S&P 500 gained an average of 10.4%, with 93% of the returns positive. Typically, the S&P 500 has gained about 5% over a six-month period with 73% of returns positive.

SPX Gold 10 Percent

Next, let’s see how gold has performed after the same signals. History clearly favors buying stocks over gold after these occurrences; the safe-haven asset has typically underperformed after strong rallies from equities. Six months after the signals, gold averaged a slight loss, with just 40% of the returns positive. Since 1980, gold typically gained 2% over a six-month period with a 54% chance of having a positive return.

Gold SPX Returns

I did a similar study as above, except instead of looking at three-month rallies of 10% or more for both assets, I looked at 15% rallies over six months. The first table shows S&P 500 returns after these updated signals and the second table shows the gold returns. Stocks tended to rally strong immediately after these signals, gaining over 5% on average over the next three months. But then the longer term six-month and one-year returns, the SPX underperformed its typical returns since 1980. Gold, on the other hand, underperformed in the shorter term timeframes then outperformed its baseline over six and 12 months. 

SPX Gold 15 percent

Based on the historical data above, stocks have been a much better bet than gold after strong rallies in both assets.


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