Gold vs S&P 500: Which Is Best?

From the birth of the first civilizations to the present day, nearly every culture has one thing in common: gold. This precious metal has been found in ancient artifacts all over the world. It was a symbol of wealth, power, and divinity across continents, oceans, and hemispheres.

What today’s investors want to know is, gold vs S&P 500, which is best? What will gold be worth in ten years? Is there a downside to investing in gold?

What Will Gold Be Worth In 10 Years?

Gold is as much in demand today as it was thousands of years ago – and not much has changed in terms of the reasons for its popularity. It is intrinsically beautiful, making it a sought-after material for fine jewelry, and it has a number of unique physical properties that are in high demand.

Gold conducts heat and electricity exceptionally well, and it reflects heat and light effectively. Gold can be flattened into thin sheets or stretched into fine wires without breaking. It doesn’t decay or rust, so it lasts forever – and so do items made with gold. Its indestructibility, coupled with its conductivity, make gold a popular material for medical, dental, and electronic applications.

The trouble is that there isn’t that much gold in the world. Since the Stone Age, the total amount mined is estimated at 208,874 tons – most of which has been unearthed in the past 75 years. Though that figure sounds high, gold is quite heavy. If the 208,874 tons of gold were molded into a cube, it would only measure about 72 feet on each side.

Only about 52,000 tons of gold are known to remain underground, so 80 percent of known gold is already in circulation. As demand grows and supply dwindles, basic economic principles are clearly visible – gold prices have increased over time. Certainly, there have been ups and downs as with any asset, but the long-term trend is decisively up. In 1920, gold prices were under $300 per ounce (adjusted for inflation). Today, they are over $2,000 per ounce.

It’s impossible to predict what gold will be worth in ten years because so much depends on how it is being used as well as larger economic conditions. With that said, it is a safe bet that buying gold today will deliver long-term returns. But is there a downside to investing in gold?

Is There A Downside To Investing In Gold?

Gold is widely considered a safe investment because it has a long history of growth. However, as with any asset, there are disadvantages to investing in gold. The most obvious is the difficulty of storing large quantities of gold. The space and security required are costly, which eats away at returns.

Fortunately, there are alternatives to buying physical gold that offer the benefits without the logistical challenges. The most common include gold certificates, exchange-traded funds (ETFs) or mutual funds that focus on gold, gold mining stocks, gold futures contracts, and various derivative products.

If you are considering should I buy real gold or ETF, determine whether storage space and security are convenient and affordable. If real gold isn’t practical, these are some of the best gold ETFs:

• Aberdeen Physical Gold Shares ETF (SGOL)

• GraniteShares Gold Trust (BAR)

• iShares Gold Trust (IAU)

• ProShares Ultra Gold (UGL)

• SPDR Gold MiniShares (GLDM)

• SPDR Gold Shares (GLD)

• WisdomTree Efficient Gold Plus Equity Strategy Fund (GDE)

The second disadvantage of investing in gold is more difficult to overcome. Though gold is likely to go up long-term, there is no guarantee it will out-perform the stock market. Gold is a relatively safe investment, but the reduction in risk comes with lower returns.

For those wondering, “Should I buy gold or invest in stocks?”, the answer may not be clear-cut. It depends on investment objectives, investment horizon, economic conditions, and what other assets – if any – are included in the portfolio.

Is There A Correlation Between Gold And S&P 500?

Is gold better than the stock market from a returns perspective? Or is S&P 500 a better investment than gold? It’s not quite that simple because of the relationship between gold prices and stock market movements.

There is a correlation between gold and the S&P 500, but it is a negative correlation. That means the two don’t move together – they often but not always move in opposite directions. If they had perfect inverse correlation, when the S&P 500 goes up, gold prices go down – and when the S&P 500 goes down, gold prices go up.

This phenomenon occurs because gold is considered a safer investment than traditional securities. When bad economic news causes a stock market crisis, investors abandon high-risk growth stocks and flock to the security of gold.

Correlation is measured on a scale from negative one (-1) to one (1). Assets with a correlation of one move in lockstep – when the first goes up, the second goes up by the exact same amount. A correlation of negative one means the two assets move in the exact opposite direction. When the first goes up, the second goes down by the same absolute amount. Assets with no correlation at all are at zero (0) on this scale.

Though the S&P 500 and gold prices do not have a perfect negative correlation, the negative correlation is fairly high. That makes gold a smart choice for hedging higher-risk stocks. But is gold a better all around choice? Does it make sense for investors to put all of their money in gold?

What Is The Average Return Of Gold vs. S&P 500?

Economic cycles follow the same pattern over and over again – the market expands until it hits a peak, then contracts until it hits the bottom of the trough. Then it begins expanding again. The only question is how long the periods of expansion and contraction will last.

Because gold has a negative correlation with the S&P 500 and the larger stock market, it follows a similar cycle in reverse. Therefore, determining the winner in a gold vs. S&p 500 matchup depends on timing. During periods of market expansion, the S&P 500 delivers far better returns than gold. During periods of market contraction, gold is far more profitable.

Short-term investors must evaluate all of the factors that contribute to movement in the market before deciding whether to invest in the S&P 500 vs. gold. For long-term investors, the decision is simpler. Over time, the S&P 500 has historically outperformed gold, so the stock market is a better investment for those who wish to grow their wealth. Gold is best used as a store of value because it tends to keep pace with inflation. It can lend stability and security to a well-diversified portfolio.

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