In a surprising turn of events, gold has officially outperformed the S&P 500 stock index in 2023. The recent October rally has propelled the price of an ounce of gold near the $2,000 mark, marking a significant milestone not seen since May.
Metals traders credit gold’s remarkable gains to a surge in demand for hedges and safety plays. The catalyst behind this surge was the October 7 attack on Israel by Hamas, a designated terrorist organization by the U.S. and European Union. The attack triggered a war between Israel and Hamas, sending shock waves worldwide and driving up the price of gold.
Brien Lundin, editor of Gold Newsletter, highlighted the impact of the Hamas attack on gold prices: “The brutal Hamas attack on Israel sent shock waves around the world — and sent the price of gold soaring.”
Comparatively, the S&P 500 index has gained 7.8% since the beginning of the year as of Thursday’s close. In contrast, front-month gold futures have experienced a remarkable 9.2% increase during the same period, according to Dow Jones Market Data.
On Thursday, gold futures for October delivery (GC00) climbed $3.10 per troy ounce or 0.16% to settle at $1987.20. This marked its highest settlement value since May 16, as reported by FactSet data. With an impressive rise of more than 7.5% since the start of October, gold continues to surpass market expectations and secure its position as a strong investment option.
Stock Market Update
While the stock market has experienced significant declines recently, gold has managed to outperform stocks in both 2020 and 2022, according to FactSet data.
The S&P 500 has faced a downward trend, currently down 3.5% for the month and on track for its third consecutive month in the red. If this negative momentum continues into October, it will be the first time the large-cap index has fallen for three months in a row since March 2020.
In contrast, gold has shown more resilience compared to stocks. In 2022, gold futures finished the year with only marginal losses, while the S&P 500 saw a significant drop of 19.4% (excluding dividends). Similarly, in 2020, gold futures recorded a 24.4% increase, surpassing the S&P 500’s gain of 16.3%.
Recent Market Volatility
Recent market volatility has put further pressure on the S&P 500. As of Thursday’s close, the index has fallen 9.8% from its closing high of 4588.96 in July 31, 2023. While just below the threshold for correction territory (a decline of 10% or more from a recent high), this decline represents the largest two-day decline since March 10, which was triggered by Silicon Valley Bank’s collapse.
Gold’s Impressive Performance
It is worth highlighting that the outperformance of gold is even more remarkable when compared to the equal-weighted version of the S&P 500 (XX:SP500EW.45), which is down 4.3% year-to-date, according to FactSet data.
Overall, these trends illustrate the contrasting fortunes of stocks and gold in recent years. While stocks have struggled, gold has proven to be a more stable and promising investment option.