Financial experts indicate that historically, investing in the S&P 500 index has been easier and more profitable compared to holding gold. From 1971, following U.S. President Richard Nixon’s televised address, until 2025, the S&P 500 experienced growth in 44 out of 55 years, with declines in only 11 years. This means investors saw positive returns in approximately 80% of those years. In contrast, gold prices increased in 34 years and decreased in 21 years, reflecting growth in about 60% of the years and volatility in the remaining 40%. Human psychology tends to perceive losses as more painful than gains, making losses in gold investments harder to endure. However, the low correlation between gold and the S&P 500 is a significant advantage. Renowned investor Ray Dalio recommends allocating 5 to 15 percent of an “All Weather” portfolio to gold to provide protection during market uncertainty. Currently, the one-year correlation ratio between gold and the S&P 500 stands at 0.82, indicating a strong positive relationship, suggesting investors buy both gold and quality stocks as a hedge against fiat currency risks. Nevertheless, historical data shows this correlation is not consistent; over the long term, changes in the S&P 500 explain only about 24% of gold price fluctuations. The true value of gold lies in its “decoupling” feature, which becomes evident during severe financial stress. Over recent decades, during periods of S&P 500 downturns, gold outperformed the stock market approximately 88% of the time. For example, during the 2008 financial crisis, gold prices rose by 21% while the stock market suffered significant declines. These facts help investors understand how gold and the stock market offer different investment opportunities under varying conditions and why including both in a balanced portfolio can be a prudent strategy.
Source: binance
