Examining a 29% increase so far this year, the question arises: Could gold surpass the S&P 500's performance in 2025?
2024 has been a standout year for the broader market, with all significant indexes hovering close to all-time highs.
Following a modest 9% increase between 2021 and the end of 2023, gold has experienced a remarkable surge in 2024. With a 28.7% year-to-date (YTD) return, gold is just slightly outperforming the S&P 500's (-1.11%) 26.6% YTD gain.
Let's explore some factors that impact gold's price, its role in a diverse investment portfolio, and various methods for investing in gold.
Factors influencing gold's price
As a commodity, gold's price can fluctuate due to several macroeconomic factors.
Low-interest rates can decrease capital costs, encouraging new investment projects in gold mining, which increases supply.
Central banks may choose to increase their gold reserves, resulting in increased demand and higher prices. The People's Bank of China was the leading official sector buyer of gold in 2023, as reported by Reuters. Persistent demand from China could potentially create long-term price appreciation for gold.
Luxury goods and industries that utilize gold could also increase demand for gold.
It's essential to be aware that gold prices may differ based upon the currency it's quoted in. For example, a strong US dollar compared to other currencies can mean a lower gold price when calculated in US dollar-denominated gold. Here's a breakdown of gold's performance in various currencies compared to the S&P 500 over the last decade.
Over the past decade, gold may have underperformed the S&P 500, but not significantly in other currencies. The US stock market has generally performed better than many developed country stock markets over the last few years. For instance, investing in Japanese yen-denominated gold would have had better returns compared to investing in the Japanese stock market.
Investing in gold vs. investing in stocks
While it's impossible to predict asset performance in the short term, the S&P 500 is likely to outperform gold in the long term if the US economy continues to prosper.
The S&P 500 has historically been an excellent long-term investment due to the growth of leading US companies. From century-old corporations to tech-focused newcomers, US corporations have thrived thanks to sustained US innovation, beneficial business conditions, growing populations, and rising global industrialization and consumption.
Choosing to invest in gold instead of the S&P 500 signifies the belief that the US will lose its global competitive edge or that golden factors will drive sustained price appreciation that outpaces the S&P 500. Examples include reduced gold mining due to environmental concerns or increased gold stockpiles by central banks, even if the S&P 500 delivers solid returns.
Most investors would be well-served to view gold as a modest part of a portfolio rather than a major holding in a long-term plan.
Ways to invest in gold
Purchasing gold jewelry or bullion can be an option for investment, but it typically involves paying a premium above the spot price and comes with security risks and storage costs.
Investing in gold mining companies or gold mining exchange-traded funds (ETFs) that pay dividends is another method for earning passive income from gold. However, gold mining companies often face geopolitical dangers and must manage costs to maintain financial stability. Gold mining companies can also be unreliable sources of passive income. For instance, Newmont (NEM -0.66%), one of the most valuable US-based gold mining companies by market cap, paid $1 per share in 2024 dividends, a decrease from $1.60 in 2023 and $2.20 in 2022 despite excellent gold price growth during that period.
The simplest way to invest in gold could be through a gold ETF. Gold ETFs like the SPDR Gold Shares ETF (GLD -0.69%) and the iShares Gold Trust (NYSEMKT: IAU) utilize custodians that keep gold on their behalf. Both ETFs charge an annual expense ratio (0.25% for the iShares Gold Trust and 0.4% for the SPDR Gold Trust). These fees might be worthwhile for the convenience and liquidity of investing in "digital gold" instead of physical bullion.
Gold can be an important component of a diversified portfolio
Adding gold to a portfolio of other assets, like stocks, bonds, certificates of deposit, and high-yield savings, can help achieve diversification. However, gold isn't a dependable source of passive income. Gold can be difficult to buy and sell without utilizing a gold-focused ETF.
Gold can appreciate in value over time due to supply and demand dynamics and central bank policies, whereas the stock market grows in value due to economic expansion and US leadership in various sectors. Investors who don't own any gold might want to consider the SPDR Gold Shares ETF or the iShares Gold Trust, which can serve as foundational gold holdings without the security and liquidity concerns associated with purchasing physical gold.
In the context of managing investments and financial planning, individuals might consider diversifying their portfolio by investing in gold, as it can serve as a hedge against potential market volatility or economic instability.
Mutual funds or exchange-traded funds (ETFs) focused on gold, such as the SPDR Gold Shares ETF or the iShares Gold Trust, provide a low-cost and convenient way to invest in gold, allowing investors to benefit from the potential appreciation of its price without the need to physically purchase or store gold bars or coins.
