By Daniel McGarvey, CFA, Senior Portfolio Analyst, on behalf of Stonebridge Financial Group advisors

One of 2024’s most interesting investing stories has been the impressive performance of gold. Year-to-date (as of April 30), the S&P 500 has returned 6%, and the Bloomberg US Aggregate Bond Index has fallen -3.3%, but gold has risen 10.8% and set new all-time highs. It is especially notable that gold has been so unbothered by the push in rates, with the 10-year Treasury Rate rising from 3.9% to 4.7% this year. Gold typically, though not always, responds inversely to rate moves, so this exception raises the question of what gold is telling us.

Investors often view gold as a hedge against inflation and geopolitical risk (although the evidence on its correlation to inflation is mixed), so it makes sense that gold should rise as inflation stays sticky and global tensions rage on. However, exchange-traded funds (ETFs) tracking gold have seen persistent outflows over the last year, indicating that the run has not been driven by retail investors. Instead, we have seen global central banks emerge as the major buyers, even at these elevated levels. Ever since the U.S. imposed sanctions on Russia for the Ukraine invasion in 2022, countries like China and India have dramatically increased their holdings. China has bought gold in each of the last 17 months while simultaneously unloading U.S. treasuries, presumably for the purpose of diversifying away from the U.S. dollar.

In light of global efforts to increase gold reserves, the question of whether individual investors should also load up on the precious metal arises. The question is increasingly salient as our government continues spending and running exorbitant deficits while the unemployment rate is below 4%. In response, we would first note that we do think gold can add value to certain portfolios, and we would not be surprised if it kept reaching new highs as the election nears.  However, gold is not by any means a stable investment, and it could burn investors if they put too much faith in it. Over the last 15 years, it has had an annualized standard deviation of monthly returns of 15.1%, compared to 14.9% for the S&P 500. It has also suffered periods of significant drawdowns, such as from September 2011 to December 2015 when it returned about -42% total while the S&P 500 returned about 86% (see chart below).

Gold price in US Dollars vs. S&P Total return

Where we believe gold primarily adds value is as a diversifier when combined with other investments. Especially in times such as these, where stock-bond correlations have been unusually high, gold has historically offered low correlations to both of the major asset classes. Over the last 10 years, for example, it has had a correlation of 0.1 to the S&P 500 and 0.42 to the Bloomberg Aggregate Bond Index. These correlation benefits can also come from a variety of other alternative assets, such as managed futures, other commodities, real estate, private markets, arbitrage strategies, etc. Many of these alternatives could lag during equity bull runs, but they can also outperform during some of the market’s worst drawdowns and panic attacks.

We still favor a core portfolio of equities and fixed income as the proven way to build and protect wealth, but a satellite position in gold and/or other alternatives can help smooth the ride for suitable portfolios in uncertain times.

Equity style and Asset class Snapshots, along with Market indicators as of April 30, 2024.

Charts provided by YCharts, Inc.

Material discussed is meant for general/informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions.


Daniel McGarvey, Porfolio AnalystDaniel is a Portfolio Analyst at Stonebridge Financial Group and works on portfolio analysis and other related tasks. When away from the office, Daniel spends his time playing guitar, reading, and exploring the outdoors.