A $1 Million Gold Bar Still Pales Next to Stocks

Potentially incoming rate cuts. Regional conflicts apparently heating up. Lingering inflation worries. To conventional wisdom, that all seems to make gold a shiny and attractive asset. And, this year, it is up 20.7% versus the S&P 500’s 19.0%, piercing $2,500—a big, round number that makes a gold bar (400 troy ounces) worth $1 million, an even bigger, rounder number.^[i] But in our view, the case for owning gold is a lot weaker than this suggests.

It seems to us there are a variety of competing theories about what makes gold rise. One popular notion: Gold is an inflation hedge. But with inflation fading, that isn’t the main reason pundits tout to own gold today. Rather, it is because fading inflation increases the likelihood of rate cuts, making cash yields less attractive versus no-yield gold. But wait: This outright conflicts with the gold-inflation theory, since central banks often hike rates in inflationary times, as we just saw these past few years. (And it doesn’t stand up to historical review, either.)

Another is that gold is a safe haven when war looms—and rages. But then why are stocks up? They have been in a bull market since October 2022, even as the Russia-Ukraine War persisted (expanding into Russian territory recently) and the Israel-Hamas War broke out, threatening to broaden in the Middle East. Arguing this is propelling gold presumes the market for it is efficient while stocks ignore information leading almost every global newspaper. This doesn’t make much sense, in our view.

These inherently contradictory theses to own gold underscore a reality for would-be investors. While there are short-term stretches when gold allegedly “works”—sometimes corresponding to high inflation, low rates, war or some combination thereof—there is no consistency.

As Exhibit 1 shows, gold’s outperformance comes in bursts. Yes, gold shined in the late 1970s and early 1980s amid double-digit inflation—likely cementing its reputation—but after peaking in January 1980, it didn’t regain the mark until January 2008, 28 years later. Falling rates and several wars in the meantime didn’t seem to help. Prices overall rose throughout that span. Gold’s 2001 – 2011 run did correspond with overall falling rates and the War on Terrorism (with tame inflation). But while low rates and Middle Eastern conflicts (the “Arab Spring”) extended past 2011, gold’s rise didn’t. It didn’t regain those levels until 2020, before falling back once again. It took another three years to surpass that 2020 peak. During the interim, notice gold’s lull occurred as Europe’s biggest war since WWII began in February 2022 and US inflation spiked to 9.1% y/y that June (though rates were beginning to rise then).^[ii]

Exhibit 1: If You Had Bought Stocks Instead of a Gold Bar

Source: Global Financial Data, Inc. and FactSet, as of 8/28/2025. S&P 500 total return and gold price per troy ounce, 12/31/1974 – 8/27/2024. Y-axis in base-10 logarithmic scale, which plots the same-sized percentage moves in equal increments graphically.

Like any commodity or product, gold prices are driven by supply and demand. Gold’s supply is famously limited, but given its few industrial uses, demand mostly swings on sentiment—buyers’ moods. Whether that mood hinges on inflation, geopolitics, holiday shopping, ETF demand or rates is anyone’s guess day by day. Lacking a material commercial application tied to the business cycle, demand shifts largely whichever way the sentiment winds blow.

For those holding gold over the long haul, the shiny metal has historically been a shiny, yellow anchor. $74,600 bought you a bar of gold on December 31, 1974, when President Ford legalized ownership.^[iii] That is now $1 million, as recent headlines tout. But that $74,600 invested in the S&P 500 in 1974 with dividends reinvested? It would be $24 million now. Juuuuuust a bit left on the table. Turns out stocks are a much better inflation hedge. And they rise far more consistently. In the 49 calendar years since 1975, stocks were up in 40.^[iv] Gold? Only 30.^[v]

As for an asset that cushions against short-term volatility, bonds are much steadier—and more reliable. That doesn’t mean bonds don’t experience some volatility, but it is generally far less than stocks’—or gold’s. Typically, you would expect higher returns to pair with higher volatility and vice versa. Cumulative annualized returns for the S&P 500 are 12.3%, 5.3% for gold and 6.5% for benchmark US 10-year government bonds since 1974.^[vi]

But not only are bonds’ long-term returns higher than gold’s, they wiggle a lot less, which we can quantify using standard deviation—the degree of fluctuation around the average annual return. Bonds’ standard deviation is 10.0%, meaning over any 12-month timeframe, about 68% of bond returns’ observations were within plus or minus 10.0 percentage points of its annual average return.^[vii] Meanwhile, stocks’ standard deviation is 16.2% and gold’s 23.9%.^[viii] In our view, gold’s returns don’t sufficiently account for the volatility risk.

Hence, to us, gold is a timing play. And with all the conflicting narratives around gold, it is difficult to know why it is doing what it is at any given time. In our experience, without understanding why something is happening, it is awfully hard to know when it may recur in the future.