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Sell Stocks, Buy Gold. It is time to take risk of the table | by Daniel Schönberger | Jan, 2024


It is time to take risk of the table

Although I already expected the United States to hit a recession in 2023 and the stock market therefore not performing too well, the S&P 500 surprised by rallying over 24% during the year (not including dividends). Gold also had a solid year and although it could not match the performance of the S&P 500, it was a good investment and increased 14.59% in value.

I would like to make the case that we should sell stocks at this point and buy gold. Or if already in the portfolio, I would recommend holding on to gold while I would trim positions in equities at this point.

Before making the argument why gold could be one of the best investments to hold in 2024, I would look at the pair trade stocks-gold and argue why gold should be preferred to equities at this point. Over the long run, equities are most likely the better investment. When looking back at the last 51 years — since January 1973 as we had the gold standard before — gold almost matched the performance of the S&P 500. While the S&P 500 increased about 3,900%, gold increased about 3,050%.

Source: Longtermtrends

However, comparing the performance of the S&P 500 to gold over such a long timeframe is misleading. The S&P 500 is not including dividends and over such a long timeframe excluding dividends is disturbing the picture in an extreme way. Instead, we should compare the performance of gold to the Wilshire Large Cap index, which is a total return index (assuming the dividends are reinvested right away).

Source: Longtermtrends

And here we see stocks being the much better investment. Instead of an increase of 3,050% of gold, investing in stocks would have returned about 17,900%. While this is a strong argument for investing in stocks, we can also see that a huge part of the outperformance stemmed from mid-2011 till today. When gold peaked in 2011, the it was still a head-to-head race between gold and stocks.



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