Why gold is set to beat stocks this year as it did in 2011

Posted on 07 April 2015 with no comments from readers

Gold is now up two per cent this year, outpacing the S&P 500’s one per cent gain. The last time gold beat the S&P’s price appreciation in a full year was in 2011, when gold rose 16 per cent while stocks were flat. Could this be the story for 2015?

Stocks beating gold is literally a cry-out-loud to purchase stocks that you must have heard of lately and this gets certain people all exasperated and furious. It is infuriating mainly for two different motives

  1. It is a completely out of the context comparison that misguides stock investors totally.
  2. It also results in an incorrect affirmation of investment both in the short-term and medium-term.

Although there are several who states that stocks are here for the long-term, there are a few others who feel that gold will soon outperform in the race between gold versus stocks. If you are to believe gold and stock predictions, then it is expected that while stocks will return a 6.7% rate of return, gold will return a 0.6% rate of return. If such is the case, then it is obvious that stocks will beat gold but then the real question arises as to why manipulators of the market would mislead both stock and gold investors.

Gold to don the cap of a diversifier

One important reason to keep in mind is that investors invest in gold mainly for two reasons:

  1. Gold may eventually outperform stocks.
  2. Gold will be valuable as a diversifier.

It is quite obvious that the dollar has started to underperform, hence it is only natural to seek out other diverse assets of greater value such as gold. Gold’s outperformance over dollar was evident when the former debased the latter during the Great Depression. Moreover, this period also witnessed a negative performance in stocks as a result of financial repression when the interest rates started going negative. It is during such instances that gold is believed to be more favourable. Gold was treated as the “go to these guys” for salvation.

Conclusion: Will gold outperform?

For gold to outperform stocks that have excelled in the past years, several situations need to be analysed. For example, the gold price peak in 1980 or the Nasdaq bubble. These situations can predict how gold might perform against stocks. However, the most important thing that will always matter is whether the gold prices will go forward or not.

George Gero, a precious metals analyst with RBC, credits Friday’s especially weak jobs number for gold’s rally…