In mid-March, gold broke through the psychologically important $3,000/oz level, which felt like little more than a speed bump in the midst of a furious gold bull market.
At the time of writing, spot gold is trading at $3,124/oz and has risen 7.8% in the last 30 days alone.
In the last year, gold is higher by 36.8%, massively outperforming the S&P 500 (up 7.4%) and the Nasdaq (up 6.4%).
It’s also beating the returns of European stocks (German DAX index is up 23.3%; the Stoxx 50 is up 5.5%) and Bitcoin (higher by 22.5%) and is performing in line with Chinese stocks (as measured by the Hang Seng index, which is higher by 37.1% in the last year).
With elevated levels of uncertainty in the markets, gold has been on a tear and has been one of the best assets to own in the short or intermediate term.
Although it’s been plenty strong on a longer time horizon as well, as gold is higher by 91.8% over the last five years, modestly underperforming the 126.4% return in the S&P 500 over the same period (but actually outperforming stocks over the last 20 years).
But the $3,000 level wasn’t the most interesting price threshold gold hit in the last month—that would actually be $3,110.35 per troy oz.
At that price, the U.S. dollar is, quite literally, no longer worth its weight in gold.
You see, the highest-value bill in circulation ($100) weighs in at about a gram.
And, at 31.1035 grams per troy oz, that’s the price at which a gram of gold is more valuable than a gram of U.S. dollar.
One of the knocks against gold has always been how unwieldy it is to store large quantities safely, but at these prices, it’s now a lower lift to store than an equivalent value of $100s.
Of course, there are more practical considerations than weight when transacting in physical gold (liquidity being the major one; it’s much easier to peel off a $100 than to chisel off a gram of gold), and simply stashing the lion’s share of your wealth in a safe or under a mattress isn’t usually considered the wisest move.
But, given this “momentous” occasion, the least we can do is give gold its due.
Moving on…
In light of the strength of gold, I wanted to take a moment and consider the yellow metal’s recent outperformance through the lens of a few charts and figures.
Let’s start with the last 20 years.
Gold’s 20-Year Returns vs. the S&P 500
As you can see in the chart, gold has outperformed the S&P 500 over the past 20 years, rising 634% vs. a 380% return for stocks.
But that outperformance is owing to a few specific spans, 2008-2012, 2019-2020 and 2024-2025.
2008, as you no doubt remember, coincided with the Great Recession, 2019-2020 marked the pandemic and the associated liquidity injection, and the last year-plus (especially the last several months) have coincided with a significant rise in economic uncertainty.
It’s important to note that this chart entirely encompasses the post-Great-Recession liquidity surge from the central bank and a massive increase in the federal debt.
Gold’s 35-Year Returns vs. the S&P 500
If we look at a longer timeframe, going back to 1990, we can see that the S&P 500 has more than doubled the performance of gold, rising 1,490% against gold’s 676% return.
And, of note, gold was flat or lower from 1990 through the end of 2004, which coincides with the beginning of the chart above.
In other words, during a normal, relatively healthy economy (yes, it did include the run-up and crash of the dotcom bubble), gold’s attraction as an asset class was effectively nonexistent.
Where gold has excelled has been against two backdrops: As a safe haven during periods of uncertainty, and as a non-dollar asset during major liquidity events (which, unfortunately in my mind, includes most of the last two decades).
Because gold lacks any value-adding characteristics (such as paying a dividend, the possibility for growth, etc.), it loses its attraction in a normal market environment (as it did in the ‘90s and from 2012-2020).
In short, the most dominant performance drivers for gold are fear and liquidity.
So, what should we expect going forward?
In my mind, gold will maintain its fear-based appeal for as long as uncertainty abounds.
That should remain doubly true if interest rates remain low (high interest rates make ultra-safe Treasurys more competitive against non-yielding gold).
The biggest risk to gold would be quantitative tightening efforts by the Fed (it’s no coincidence that the Fed’s QT program in 2022 was met with weakness in the price of gold), as any efforts to pull excess liquidity from the system remove a source of fuel for gold’s rally.
And, on that front, the news is good, as the most recent Fed meeting saw the FOMC indicate that it would slow the pace of its balance sheet runoffs beginning in April (slower tightening, but no easing yet).
Until headline fears begin to subside and the Fed gains confidence in the economy, it looks like gold should continue to shine.
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