Better to follow the yellow brick road than stocks so far in 2024

For all the talk about the S&P 500’s impressive 11.3 percent return prior to the Memorial Day break, it’s probably worth taking a quick gander over at gold too. Why? Because the yellow metal is up 13.1 percent since the start of the year.

That’s right stock jockeys, so far this year it’s been better to follow the yellow brick road than to track the S&P 500.

Max Belmont, a portfolio manager at First Eagle Investments, says gold’s upward trajectory may not end anytime soon, even if the bull market in stocks peters out, due to its distinctive historical role in financial markets.

“Gold has served as a store of value over millennia and its unique risk return characteristics have enabled it to maintain its real purchasing power over time,” said Belmont. “So we see gold as a potential counterweight to equities.”

Helping gold’s cause is America’s outsized national debt of $34 trillion, which exceeds the country's $28 trillion GDP, says Belmont. The high debt-to-GDP ratio spurs inflation, which has traditionally been a boon for gold prices.

“We're adding $1 trillion of debt every 100 days or so,” said Belmont. “We have globalization, and we have persistent inflation, so it feels that investors may be hedging and looking to gold as a way to mitigate the risks that arise from the expectation that the fed will cut towards the end of the year.”

Tom Graff, chief investment officer at Facet, says gold’s strength this year is fueled in large part by Chinese buying. And he warns that gold’s fortunes could turn just as quickly should they choose to slow their purchases.

“I think it is especially risky if indeed the Fed winds up leaving interest rates unchanged for the rest of 2024," said Graff. "That could put a charge in the dollar which would probably be gold negative."

On the other hand, Daniel Lash, certified financial advisor at VLP Financial Advisors, is not jumping on the gold bandwagon.

“We historically have not invested in gold in client accounts due to the lack of interest and dividends and due to the historical price of gold going long periods of time of no or very low appreciation,” said Lash.

According to Lash, while the standard deviation for gold is low, he would rather utilize different types of bonds to provide client portfolios with lower correlated asset class to stocks and at the same time providing income. 

He adds that while the 30 year appreciation of gold is 516%, the appreciation of the S&P 500 over the same time period is approximately 1,983%, making equities the obvious choice despite gold’s recent stellar run. 

Steve Stanganelli, certified financial planner at Clear View Wealth Advisors, holds gold indirectly in client portfolios through a diversified commodities ETF. He views gold as a barometer of fear. In this case, fear about international strife. With regard to gold’s position relative to stocks, he says investors may be growing wary of the long bull run. 

“There’s also an element of greed at play,” said Stanganelli. “As gold prices have climbed with central banks and Chinese investors gobbling up supply, you have a bandwagon effect from those worried about missing out on the latest, glittering trend. It should be part of a diversified portfolio. But I wouldn’t bet the farm on it.”

Finally, Chuck Etzweiler, chief research officer & senior vice president at Nepsis, takes an unconventional view of Gold’s role in investor’s portfolios. He sees it not as an investment in the classic sense, but as a hedge against a given currency where a particular investor may reside.

“According to Professor Jeremy Siegel’s classic book ‘Stocks for the Long Run,’ the long-term value garnered via business ownership, like owning stocks, since 1802 far outweighs that of any asset including gold,” said Etzweiler. “Don’t discount Gold’s role. However, don’t over-emphasize its capabilities as well.”