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Once again, gold has taken the crown as the best-performing asset in the 21st century. From the turn of the century to year-end 2024, the S&P 500®
recorded an annualized return of 7.7%, while the S&P GSCI Gold recorded 8.5% annually. While besting stocks for a quarter century, gold is still considered a safe-haven asset, especially during periods of economic uncertainty. However, 2024 highlighted how gold can also perform well during bull markets. The S&P GSCI Gold and S&P 500 posted supersized returns for the year, topping 26.6% and 25%, respectively.In this post, we look at how the S&P GSCI Gold performed during up and down markets to better understand how it sustained long-term outperformance this century, while also maintaining its safe-haven reputation. Lastly, we expose how gold’s lack of income generation could be the chink in its (golden) armor. However, deploying popular index-based strategies, we discuss the possibility of generating income through the gold derivatives market.
Gold in an Up Market
In a thriving economy, gold may serve as a hedge against inflation and currency devaluation. For instance, during the 2000s, as the S&P 500 experienced substantial gains, gold prices also steadily increased, driven by rising demand from emerging markets and geopolitical tensions. Following the dot-com crash, equity markets rebounded, with the S&P 500 increasing 82% from 2002, trending upward until the next downturn in 2007. During that same time, the S&P GSCI Gold outperformed stocks, increasing 132%. Gold rose 30% between 20010 and 2020 but did not keep pace with the equity market after the Global Financial Crisis, but there have been more recent examples of gold outperformance since. Like the dot-com era, technology stocks have recently helped push the S&P 500 to all-time highs. Gold not only kept pace in 2024, it outperformed the market by 160 bps. 
Gold in a Down Market
Conversely, in a downturn, such as the dot-com bubble burst in the early 2000s, gold has often shone as a refuge. During this period, the S&P 500 plummeted, while the S&P GSCI Gold surged as investors flocked to its perceived safety. From 1999-2002, the S&P 500 fell by 38%, but the S&P GSCI Gold rose 21%, demonstrating gold’s effectiveness as a protective asset. During the Global Financial Crisis, the S&P 500 fell 34% during 2007-2008, while the S&P GSCI Gold rose 34%, outperforming stocks by 6,800 bps of excess return during that period. In the past six calendar years when the S&P 500 produced a negative return, S&P GSCI Gold outperformed by an average of 20.8%. 
Historically, gold has tended to retain value during economic downturns, providing a cushion against stock market volatility; however, it has also performed well during inflationary periods, preserving purchasing power. Adding gold to a multi-asset strategy may reduce overall risk and volatility, owing to its low correlation with other asset classes (see Exhibit 3). It has also demonstrated relative out-performance when the Fed maintains a restrictive monetary stance (see Exhibit 4). 
One of the drawbacks to the S&P GSCI Gold is the lack of income generation. After all, gold is an “unproductive” asset that produces no income and creates zero shareholder value. However, employing a covered call strategy like the S&P GSCI Gold Covered Call has the potential to create a synthetic income stream, and the index has shown positive excess return over time. The S&P GSCI Gold Covered Call had excess return compared to the S&P GSCI Gold over the period from 2004 to 2024. 
Looking ahead, factors such as global economic uncertainty, inflationary pressures and geopolitical tensions may drive demand for gold. Central banks around the world have pursued policies to “de-dollarize” and have increased gold holdings as part of their reserves, supporting its price. Gold’s role as a potential diversifier and hedge against economic instability could make it an important component of a well-rounded strategy.More By This Author:Shifting Tides: Concentration, Dispersion And The S&P 500 Risk Landscape
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