Stocks have had a great year, despite Tuesday’s sell-off and the market swoon in early August. Gold, however, is doing even better. The metal is up about 30% in the past year, compared to roughly 23% for the S&P 500. Gold’s spot price sits above the $2,500 mark, down slightly from an all-time high set before Labor Day.
Long viewed as a safe-haven asset and hedge against inflation, gold has historically lagged behind both inflation and equities, said Rob Haworth, a senior vice president and investment strategist at U.S. Bank.
“You're doing well as a stock investor,” Haworth said. “You're doing well as a gold investor, and that's maybe a little more of the unusual thing, which tells you this environment's a little different than what we've seen in the last 30 years.”
View this interactive chart on Fortune.com
New investors can sometimes acquire physical gold, typically in the form of bars or coins, from their bank or brokerage. If not, they can head to precious metal dealers or even Costco. For those wishing to avoid the hassle and expense of storing gold, not to mention transaction fees and insurance, popular exchange-traded funds like SPDR Gold Shares are an easier way to gain exposure to the metal.
Options on gold futures or ETFs allow investors to hedge or make bets on the metal's price movements, while stocks or ETFs for gold miners provide exposure to the industry itself. For most of the last 50 years, however, being a so-called "goldbug"—the term for someone bullish on gold, perhaps because they're skeptical of fiat currency—hasn't paid.
Will the gold rally continue?
Gold's rise over the last few years can be partially explained by post-pandemic inflation, Haworth added. A more important factor, however, could be an uptick in central bank purchasing. The trend was highlighted by China’s recent 18-month buying spree, a move seen as an attempt to help diversify its reserves away from the dollar and guard against currency depreciation.
That effort could be heightened, Haworth said, as both the Republican and Democratic presidential tickets have called for increased tariffs and other protectionist measures, particularly against China.
“Foreign buyers are just a much smaller proportion of the Treasury market than they used to be,” Haworth said, “and that money has to flow somewhere—to the extent that they're still doing trade—and that can be gold.”
He noted those purchases are typically very discreet, however, as central banks compete to buy a commodity valued for its relatively stable supply.
“It's kind of like when Warren Buffett's buying or selling securities,” he said. “You hear about it well after it's done.”
When the U.S. fully abandoned the gold standard in 1971, gold’s status as a safe-haven asset became embedded in market lore, Haworth said. When historically high inflation and a depreciating dollar took hold at the end of the decade, investors had nowhere else to go.
“It was the heyday for commodities,” Haworth said. “It's kind of what made the commodities as a diversifier trade work in the research data. And then that hasn't exactly been the case ever since.”
Therefore, Haworth warns investors against rushing to make gold a part of their portfolios. Liquidity can be tricky, and selling after a price increase is as much a timing game as anything else.
“We see some tactical value in it,” he said. “But from a long-term fundamental perspective, we're not clear how it would actually contribute to a financial plan.”
Sounds like there might be better ways to hedge against market risk than snapping up those Costco gold bars.
