During times of economic uncertainty and high inflation, gold tends to outperform stocks. When economic growth is strong and predictable and inflation declines, stocks rise more than gold.
Due to the near certainty of high market uncertainty under the Trump administration and the odds of high U.S. tariffs and counter-tariffs driving up inflation, we are entering a golden era for buying gold.
Historically, stocks outperform other asset classes. For example, over the last 70 years, The Dow Jones Industrial Average rose 13,900% – considerably more than the 7,800% inflation-adjusted rise in the price per ounce of gold.
However, for the next five years, due to geopolitical risks, inflation, and/or central bank buying, gold could outperform stocks – rising to about $5,000 per ounce in 2030. If instead the next five years are a period of stable, low-inflation growth, earnings and dividends could send stocks up more than gold.
Read on for a comparison of times when gold outperformed stocks and vice versa, why the difference, and what you should do about it.
When Gold Outperformed Stocks
In times of high fear, people buy gold. This brings back memories of my sophomore year in high school when I asked my history teacher why people bought gold – which struck me as a shiny but fundamentally useless store of economic value. The teacher simply stared at me as if I was clueless.
The answer to my question emerges from this analysis of the time periods over the last 70 years when gold outperformed the Dow:
- 1971–1980: During these years, gold rose about 2,300% while the Dow fell 25%, according to MacroTrends. The reasons? Gold surged during these years due to the end of the Bretton Woods agreement that aimed to ensure currency exchange rate stability, noted Federal Reserve History, along with stagflation – a combination of high inflation and slow economic growth — and high geopolitical tensions, wrote Investopedia.
- 1999–2011. This period featured the dot-com crash and the Great Recession – sending gold up about 570%, noted MacroTrends, while the S&P 500 declined 15%, Investopedia reported.
- 2020–January 2023. In these years – during which gold rose 75%, according to MacroTrends, the S&P 500 increased 60%, noted Yahoo! Finance. During this period, the world lived through the Covid-19 pandemic, Federal Reserve Board stimulus, high inflation and the Russia/Ukraine war.
When Stocks Delivered Higher Returns Than Gold
When economic growth is strong and inflation is low, stocks tend to outperform gold.
- 1955–1971. During this period gold prices rose a mere 14% while Dow added 140%, noted MacroTrends. In these years, gold was fixed at $35 per ounce and a postwar economic boom propelled stock prices, noted Investopedia.
- 1980–1999. These nearly two decades feature the S&P 500 rising 817% while the price of gold fell 62%, according to MacroTrends. This happened because then Fed Chair Paul Volcker raised interest rates which smote inflation, according to the Bureau of Labor Statistics. Thereafter, technology spurred high economic growth, Investopedia wrote.
- 2011–2019. During this eight-year period, gold’s price fell 62%, MacroTrends reported, as the S&P 500 soared 817% noted Investopedia. The rise in stocks was propelled by a post-financial crisis economic recovery featuring low inflation and low interest rates as reduced uncertainty drove investors away from gold, according to a post on Forbes.
Will Gold Outperform Stocks By 2030?
What do the next five years bring for gold and stocks? Economists and portfolio managers – of which MacroPolicy Perspectives polled 115 – expect a “stagflation supply shock,” according to the New York Times.
Those experts expected a 0.6 percentage point reduction in growth, a half point rise in the unemployment rate – to 4.6% over the next year, and a 0.5 percentage point rise in inflation to 3%, noted the Times.
Such stagflation looks like the period from 1971 to 1980 – when gold outperformed stocks by 2,325%. It will certainly put the Fed into a difficult position of whether to raise interest rates to tamp down inflation or to keep them where they are now – or lower them – to keep unemployment from rising more.
“Internally they have to sit up and take notice of that even though in public they’re trying to downplay it,” retired president of the Cleveland Fed Loretta Mester told the Times. “You look at those measures and you have to say, ‘Wow, these may not be as well anchored as we’d like.’”
This suggests adding gold to your portfolio might be a good move over the next five years.