Pundits in the financial media seem to enjoy pitting stocks and gold against one another. They often declare equities the winner by large margins.

Despite that bias, the true story of stocks and gold is more of one complimenting the performance of the other.

Stocks and gold serve different purposes. Stocks are for growing wealth, gold is for protecting that wealth when the world goes wrong. At worst, their relationship is one of "frenemies."

Over the long term, this relationship is better described as being collaborators in growing and safeguarding a person's wealth.

stocks vs gold ally or enemy

Stocks vs. Gold: Enemies or Allies? Stuart Miles - Freerange Stock

Stocks Pros and Cons

Stocks are generally accepted to have the greatest potential when it comes to generating wealth. When looking at 30 years or more, nothing comes close.

However, stocks also have some of the greatest potential for loss as well. There's no such thing as a free lunch, and there's no such thing as guaranteed returns.

Even the most bullish financial experts warn against going 100% into stocks, unless you're at peace with the idea of losing most (or all) of your money. (Ask the people who went all-in on Pets.com.or Countrywide Mortgage what happened.)

NYSE building outside

New York Stock Exchange (NYSE) Building - skeeze | Pixabay


  • Best potential for growth, even accounting for inflation.
  • Alternatively, one can invest for lower appreciation in return for dividend income, and still profit from a more modest share price appreciation.
  • Breadth of the stock market makes diversification easy, by investing in index funds, or actively choosing stocks in different sectors.
  • Index funds/ETFs and passive investing provide no-brainer methods of investing in the stock market.
  • Blue chip stocks and those of other large companies are very liquid.
  • Shares of stock are intangible. They don't need to be physically stored.


  • Greater rewards (returns) only come from greater risk.
  • Real possibility of losing most, or all, of your investment.
  • Volatility is higher in stocks than other assets (bonds, gold, real estate).
  • Exposure to individual stocks is far more volatile that investing in indices.
  • Individual stocks go to zero when companies fail.
  • Actively trading in stocks is very difficult and time consuming, with substantial risk of an error or "black swan" event wiping out a major portion of your wealth.
  • Hidden dangers of losing investments in companies where management is caught using illegal means boost performance (Enron, Theranos).

Gold Pros and Cons

There are two types of gold investors: short-term investors speculating on rising (or falling) prices; and long-term investors using gold for diversification and market hedging.

The former usually confine themselves to the commodities futures market, or, to a lesser extent, to the shares of gold mining companies. Long-term investors tend to hold physical gold, or shares in a gold ETF that backs its shares with bullion (see our video "What Is A Gold ETF?").

Options when holding physical gold include bank safe deposit boxes; through the custodian of your precious metals IRA; with a licensed vault service; or in a safe at home.

gold eagle coin

Gold Eagle Coin (©Gainesville Coins)


  • Gold is a tangible asset. Its value will never go to zero.
  • Physical gold is immune to counterparty (default) risk.
  • Most states in the U.S. no longer levy sales tax on bullion.
  • Negative correlation to stocks make gold an excellent way to diversify.
  • This means that gold prices usually rise as stocks fall during recessions, reducing portfolio losses.
  • Gold can also appreciate during boom times due to higher consumer spending on jewelry and electronics (but not as much as stocks).
  • Choosing a method to invest in gold is far less complicated than picking stocks.
  • Gold ETFs allow nimble movement in and out of exposure to gold prices as risk sentiment ebbs and flows.
  • Gold acts as a multi-faceted currency hedge, especially in currencies of developing or emerging markets.
  • It is an economic safe haven, acting as "disaster insurance" in times of war, recession, or bank failures.


  • Gold offers returns solely from price appreciation (doesn't pay dividends).
  • "Weak hands" can cause volatility in gold prices, piling in during a political or economic crisis, then selling when the crisis is over.
  • Gold prices are vulnerable to short-term speculation in gold futures.
  • Gold ETFs, even those backed by physical gold, are NOT an ownership stake in gold.
  • Redemption of gold ETF shares may not be possible in times of true crisis, where the stock markets are temporarily closed.
  • Physical gold is cumbersome to sell, compared to shares of stocks or gold ETFs.
  • Insurance/storage fees for physical gold are an expense not shared by stocks or ETFs.

How Stocks and Gold Compliment One Another

This chart shows how gold's negative correlation to stocks can reduce market losses in times of stress or during a downtrend in equities.

You can also see where market reaction to the Federal Reserve's unprecedented intervention in the stock market has shaped behavior across asset classes for the last ten years, as markets' expectation of interest rate hikes became a major driver of prices.

gold vs spy S&P 500

S&P 500 vs Gold Spot Comparison (% change) | amCharts

The 2000 dot-com crash, the 9/11 attacks in 2001, and the subprime mortgage collapse in 2007 all show how gold prices rose in times of crisis.

During the 2008 Global Financial Crisis, gold prices remained flat, while the S&P 500 fell 35%, essentially acting the same way. Investors who had purchased gold ahead of time saw their fortunes weather the crisis far better than those who hadn't.

Conversely, 2012 saw central banks double down on keeping interest rates at (or below!) zero, and injecting billions of dollars of new money into the markets every month. This resulted in an "irrational exuberance" in the stock market, with investors shedding their positions in gold.

Aside from the Chinese stock market crash and "Flash Crash" in U.S. markets in 2015, stock prices have increased substantially each year between 2011 and 2017, while gold has lagged.

Efforts by the Federal Reserve to normalize monetary policy will allow the free market to act as it should. That will include the need to diversify investment portfolios to reduce volatility and improve resiliency to unexpected economic shocks that can come from a normally operating economy.

Past Performance of Investments REALLY Does Not Guarantee Future Results

Financial investment ads always include the disclaimer "Past performance is no guarantee of future results" at the end. The reason isn't just a legal precaution; it's because it's true.

When hearing about the incredible gains the stock market has racked up over the last ten years, it's important to remember that the bull market in stocks is in large part due to the unprecedented monetary intervention by the three major central banks.

rocket launch path

The market is riding a central bank-powered rocket | SpaceX

"Zero Interest Rate Policy" (ZIRP), combined with quantitative easing, were previously unheard-of efforts to expand the money supply and increase borrowing. The resulting historically low prime rates fueled an unmatched frenzy on the stock markets of the U.S., Europe, and Japan.

At the same time, these policies made fixed income investments (bonds, money market funds, etc) nearly worthless. With nowhere else to turn for income, pension plans and retirees were forced into stocks, boosting demand even further. This has resulted in the 10-year returns of the U.S. stock market from 2008 to 2018 exceeding any other 10-year span in history.

Wall Street's rocket ride showed signs of stalling in 2018, as various world economies slow down. Even with "free money," economic expansions can't live forever.

S&P 500 30 Year Performance Graph

The stock market has been on a record-setting run since the Global Financial Crisis due to extraordinary monetary policy by the Fed | macrotrends.net

Gold has seen its own incredible booms, rising to record nominal highs as the world's economies melted down during the Global Financial Crisis.

As the effects of "whatever it takes" central bank policy distorted financial markets to favor equities over all else, gold dropped from $1,895 per ounce on September 5, 2011 to a low of $1,160 an ounce in 2015 before recovering.

Gold Spot Price Graph Past 30 years

Gold had a record-setting run during the Global Financial Crisis, and has held on to most of those gains through the central bank-supported bull market in equities. | macrotrends.net

Gold prices have seen support since then, as inflation in the developing world, growing hostility in international trade policies, and geopolitical crises from Brexit to Iran increase concerns of another global economic slowdown.

Intelligent investors have learned from the Great Recession that, like any other form of insurance, gold can't act as "financial insurance" if you purchase it after the fact.

Investing Comes Down to Risk vs. Reward

There are pros and cons to ANY investment.

Investors should determine their appetite for risk and tolerance for losses, and balance their portfolio accordingly. Pairing equity holdings with counter-cyclical assets such as bonds and/or gold can reduce overall losses, while still reaping the benefits of a bull market in stocks.

According to the World Gold Council, "Gold provides diversification in a portfolio and is often correlated with the stock market during risk-on periods, while it decouples and becomes inversely correlated during periods of stress. This is unique amongst most hedges in the marketplace."

The bottom line is, stocks and gold serve different purposes: growing your wealth and limiting your risk. As financial columnist and author Brian Livingston notes, "No matter how bad the stock market may get, something else is always going up." How you balance that risk and reward is up to you.

Stack of gold coins with arrows

Jack Moreh - Freerange Stock

This article is intended for informational purposes only, and does not presume to be investment advice. Readers are strongly encouraged to seek the advice of a financial professional before making investment decisions.

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Steven Cochran

Steven Cochran

Precious Metals Market Analyst | BS University of South Florida (2002)

A published writer, Steven's coverage of precious metals goes beyond the daily news to explain how ancillary factors affect the market.

Steven specializes in market analysis with an emphasis on stocks, corporate bonds, and government debt.