Gold Has Outperformed the S&P 500 So Far This Year

Gold is trading at a record high — so high, in fact, that the precious metal's performance has now eclipsed that of the S&P 500 in 2024.

Gold, which tends to have an inverse relationship with interest rates, gained momentum after the Federal Reserve signaled last week it would likely cut rates later in the year.

Physical gold doesn’t accrue interest or pay dividends, and other interest-bearing investments can be more attractive to investors in a high-rate environment. There's no public timeline for how many times the Fed will slash rates in 2024 or when it'll happen. But the expectation of interest rate cuts is now creating more excitement around gold.

On Monday, the price of gold was $2,330 per Troy ounce, which is 13% higher than the price at the beginning of the year. The S&P 500, an index that tracks the stock performance of the 500 largest publicly traded companies, has also had a blazing-hot start to 2024, gaining 9.34% to reach its current level of 5,215.

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Historically, the stock market (as measured by the S&P 500) has been a better investment than gold. Going back 40 years, the price of gold has increased 510% while the S&P 500 has increased more than 3,200%. That doesn’t mean stocks will necessarily be the better investment going forward, but their perceived growth potential based on past performance is a big part of the reason why most investment portfolios are allocated much heavier to stocks than precious metals.

If you’re interested in gold investing, keep in mind that experts usually recommend limiting gold investments to no more than 5% to 10% of your portfolio. It’s considered a safe-haven asset that can act as an inflation hedge and tends to maintain or even gain value during economic downturns.

During a Wednesday event at Stanford University's business school, Federal Reserve Chair Jerome Powell said that inflation is getting closer to the central bank's target level of 2%; however, he noted that the job is “not yet done.” Most officials see it as “likely to be appropriate to begin lowering the policy rate at some point this year” barring a major shift in the economy, he said.

If rate cuts are delayed, it could potentially be a setback for gold prices. But without a clear consensus on when cuts could come this year, gold prices should sustain in the short term.

Beyond factors related to interest rates, high levels of central bank-buying have also boosted the price of gold, experts say. And considering gold’s tendency to perform well in crisis circumstances, recent escalations of conflicts in the Middle East and the ongoing war in Ukraine may be contributing to the surge in gold prices, as well.

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What Drives the Price of Gold?

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