Better Buy Now: Gold at $3,500 or an S&P 500 Index Fund?

Globe and Mail

30-04-2025

The price of gold is hitting new all-time highs -- surpassing $3,500 per ounce. Meanwhile, the S&P 500 (SNPINDEX: ^GSPC) is in a correction. Some investors may be wondering if it is better at the moment to buy the dip in the S&P 500 or ride the gold wave higher.
Below I'll discuss why gold is doing so well, different ways to invest in gold -- including through an exchange-traded fund (ETF) -- and if gold is a better buy than an S&P 500 index fund.
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Gold is piling on the gains
Gold prices are up over 30% year to date at the time of this writing, compared to a 12.3% sell-off in the S&P 500. Its price performance also slightly beat the S&P 500 in 2024.
Gold has been so hot that it's up more than the S&P 500 over the last three-year, five-year, and 10-year periods -- although the S&P 500 is beating it over the last five-year and 10-year periods when you account for dividends reinvested.
Still, gold's torrid run-up may come as a surprise, especially given the strong gains in the S&P 500 led by megacap growth stocks. It wasn't long ago that investors questioned when the first U.S. company would surpass $1 trillion in market cap. Apple, Microsoft, and Nvidia all closed out 2024 with market caps over $3 trillion.
Gold has made most of its gains over the S&P 500 during the last three years (there were two major sell-offs in the S&P 500 -- in 2022 and now in 2025) thanks to its steady rise in that time. Even with dividends included, the Vanguard S&P 500 ETF (NYSEMKT: VOO) is massively underperforming the SPDR Gold Shares ETF (NYSEMKT: GLD) fund over the last three years.
Data by YCharts.
The S&P 500 generally is driven higher by earnings and investor sentiment, and higher earnings justify higher stock prices. When sentiment is positive, investors may be willing to pay more for stocks, based on future earnings expectations.
Gold is based on supply and demand. It's a commodity, not a company.
Lower interest rates can reduce borrowing costs and drive gold prices higher. However, geopolitical uncertainty is an even greater catalyst for higher gold prices.
Tariff tensions, the threat of trade wars, and President Donald Trump's attacks on Federal Reserve Chairman Jerome Powell can weaken confidence in U.S. markets and potentially jeopardize their credibility. As a result, fearful investors around the world may turn away from U.S. stocks toward gold.
Another driving factor is the People's Bank of China -- the largest official sector buyer of gold in 2023 and 2024. Reports indicate that the central bank boosted its gold reserves for the fifth consecutive month in March.
In sum, there are valid near-term factors driving gold prices higher. However, that doesn't mean investors should dump stocks in favor of gold.
Buying gold versus equity ETFs
Buying gold through jewelry, coins, or bullion comes with storage and security risks. The most straightforward and liquid way to buy and sell gold is through an ETF, such as the SPDR Gold Shares.
The fund uses a custodian that holds physical gold on its behalf, with the fund passing along a 0.4% expense ratio as a fee for its services. By comparison, the Vanguard S&P 500 ETF charges a mere 0.03% expense ratio.
The better buy now depends on your investment objectives and existing holdings. If you're looking to add a new asset class to your portfolio that can perform well, even if geopolitical tensions persist, then gold could be worth a closer look. However, if you're looking to invest in a variety of companies under the simplicity of one tradable ticker, then an S&P 500 index fund may be a better fit.
Another factor worth considering is what makes up the S&P 500. A whopping 35% of the Vanguard S&P 500 ETF is invested in just 10 companies -- Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta Platforms, Berkshire Hathaway, Broadcom, Tesla, and JPMorgan Chase. If you already own sizable positions in these companies, then buying an S&P 500 index fund may not achieve the level of diversification you're looking for. There are plenty of low-cost ETFs out there that don't include these megacap names or are less top-heavy.
However, if you're looking for broad-based exposure to the market, then an S&P 500 index fund is a good starting point.
Integrating gold into a diversified portfolio
Gold has been on a tear in recent years, which has bridged the gap between gold's gains and the S&P 500 over the last decade. However, for most investors, it's probably best that gold serve more as a role player in a diversified portfolio, rather than the focal point.
Gold could fall or underperform the S&P 500 if the supply/demand imbalance changes. It's also more difficult to analyze because it isn't based on business fundamentals.
Another factor worth considering is that there aren't dividends on gold ETFs, whereas S&P 500 index funds and plenty of other equity-based ETFs have dividends, which provide passive income no matter what the market is doing.
Ultimately, the amount of gold to include in a portfolio depends on your risk tolerance and what you already own. Investors with ultra-long-term time horizons may be better off keeping gold exposure to a minimum, especially given the long-term opportunity cost of investing in gold instead of the stock market. However, the near-term catalysts for gold are undeniable, so it makes sense that gold is crushing the S&P 500 year to date.
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