Investor Cage Match: Gold Bugs vs. Equity Bulls


It’s a battle as old as markets.

Which is the better investment: gold or stocks? Gold Bugs and Equity Bulls are equally fervent about their investment of choice, often with complete disdain and contempt for the other side.

The story (since the gold standard was completely abandoned in August 1971) goes something like this…


Gold Return: +1256%

S&P 500 Return: +97%

Narrative: Gold is the best investment in the world, and will continue to be so forever. There is hyperinflation in the U.S. and a secular stagnation in real growth. The only way to protect yourself is with Gold. And by the way: no one should own stocks.



Gold Return: -51%

S&P 500 Return: +1915%

Narrative: Stocks are the greatest investment the world has ever known, and will continue to be so. The internet age has forever changed investing returns and valuations; there is no upward limit to the growth in stocks in the coming years. The only way to participate in this new golden age is to be long stocks. And by the way: no own should ever own Gold.



Gold Return: +482%

S&P 500 Return: +24%

Narrative: Stock investors have suffered through two 50% bear markets while Gold has more than quintupled. These are deflationary, depression-like conditions and only Gold can protect investors from what’s to come. This is especially true given the “money printing” by central banks. And by the way: stocks are terrible investments.



Gold Return: -37%

S&P 500 Return: +53%

Narrative: We’re in a Goldilocks period of low inflation and unlimited central bank easing. This is unbelievably bullish for stocks and very bad for Gold. This environment will continue forever. And by the way: Gold is a pet rock.


And so that’s how we entered 2016, with perma Equity Bulls lobbing ad hominem attacks at the seemingly foolish Gold Bugs.

What has happened thus far in 2016? You guessed it. Gold is up 7.7% while the S&P 500 is down -6.6%.


But who won the investor cage match?  

Right, you still want to know who won. As we have seen, it depends entirely on the time frame you choose. In 1980, Gold was Mohammed Ali. In 1999, the S&P 500 was Rocky Marciano.

By changing the start and end date, you can frame any argument you want in this business.

Overall, since 1972, the S&P 500 has had a higher return (10.3% vs. 7.7% for Gold) with lower annualized volatility (15.3% vs. 20.1% for Gold). (Side note: all of the outperformance and then some came from dividends and reinvestment – the S&P 500 price return alone was only 7.0% annualized).

gold S&P new 2-4-16

On this basis, many Equity Bulls would surely say stocks are the better long-term investment. Agreed, but define long-term and how many equity investors would be willing to sit through a 12 year period (2000-12) with virtually no return and two 50+% drawdowns in between?

Very few. Which is why the winner of the cage match is neither Equity Bulls nor Gold Bugs. It is the diversified investor who maintains (and rebalances) a mix of stocks, bonds, real estate, and alternative investments.

Let me explain. Since 1972, Gold and the S&P 500 have had a correlation of -.03. Their returns have no discernible relationship; they are completely uncorrelated. Combining uncorrelated assets can reduce overall portfolio volatility and improve risk-adjusted returns.


For example, a portfolio allocated 70% to the S&P 500 and 30% to Gold would have had the same return (10.3%) as 100% stocks with lower annualized volatility (12.9% vs. 15.2% for the S&P 500) and lower maximum drawdowns (-40% vs. -51% for the S&P 500).

gold chart

But don’t bother explaining that to the Gold Bugs or the Equity Bulls. They both have perfect foresight, with Gold Bugs expecting another 1972-1980 and Equity Bulls expecting another 1981-1999. They won’t listen to anything that doesn’t confirm that existing bias, especially if it means making peace with the enemy through diversification. After all, what fun would that be?

For our research on Lumber and Gold, click here.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.



Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts.  He is the co-author of three award-winning research papers on market anomalies and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors previously held positions as an Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.

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