Investing in Gold vs. the Stock Market
A side-by-side breakdown of gold vs. stocks covering returns, risks, and taxes.
Updated: June 30, 2025
AT A GLANCE:
- Gold helps preserve value during inflation and uncertainty, while stocks are better suited for building long-term wealth through growth and dividends.
- Stocks are generally taxed more favorably than physical gold unless you invest through a Gold IRA.
- Stocks are highly liquid and can be traded instantly, while gold may involve added costs like storage and dealer spreads.
- Holding both gold and stocks in your portfolio can improve diversification and balance your risk and return over time.
Gold and stocks have long been two of the most widely discussed investment options, but they play very different roles in a portfolio. Gold is often regarded as a safe haven during periods of inflation, economic instability, or global uncertainty. Stocks, on the other hand, are typically associated with long-term growth and wealth-building.
Your decision may come down to timing, risk tolerance, and the role you want each asset to play in your retirement or investment strategy. This guide compares gold and the stock market across risk, return, liquidity, and real-world scenarios to help you make an informed investment decision.
How Gold and Stocks Generate Returns
Gold and stocks both offer return potential, but they do so in very different ways.
Gold is a precious metal whose returns are driven by price appreciation, often fueled by economic uncertainty, market fluctuations, and changes in the US dollar. During periods of turbulence, investors often turn to gold as a hedge. Gold futures can spike sharply in response to policy signals from the Fed, particularly rate changes or tightening moves. Since the Federal Reserve influences inflation and liquidity, its actions often raise market volatility, which in turn increases demand for gold as a safe-haven asset.
Stocks generate returns through capital gains and dividends. Gains occur when a company’s share prices rise due to growth, innovation, or increased investor confidence. Dividends provide ongoing income, especially from well-established businesses. Over time, stocks can compound wealth by reinvesting earnings and participating in long-term economic growth. This gives equities more upside, but also exposes them to short-term risks, such as interest rate changes and business cycles, which gold and even real estate can sometimes buffer against in a diversified portfolio.
Newer investment vehicles, such as bitcoin or crypto ETFs, have drawn attention, but they tend to be far more volatile than traditional assets. Mutual funds, on the other hand, allow investors to spread risk across many stocks or bonds, making them a more stable choice for long-term portfolios.
Long-Term Performance: Gold vs. the S&P 500
Gold’s role in a portfolio centers on preserving purchasing power and damping volatility. The price of gold often rises when a central bank signals loose monetary policy, and its recent all-time high highlights renewed demand during economic stress.
Stocks, by contrast, are built for growth through price appreciation and dividends. The S&P 500 index tracks 500 leading U.S. companies across multiple industries, making it a reliable yardstick for equity performance. The Dow Jones Industrial Average is another major index, representing 30 blue-chip U.S. companies across key industries.
As of June 2025, the Dow Jones stands at 43,819.27, offering another perspective on stock market strength and overall investor confidence.
Here’s how gold and the S&P 500 compare on key long-term performance metrics:
| Index | Compound Annual Growth Rate | Standard Deviation | Sharpe Ratio |
| Gold Spot Price | 7.28% | 14.76% | 0.47 |
| S&P 500 | 10.83% | 15.32% | 0.66 |
Although equities have historically outperformed gold in annual returns, they come with slightly higher volatility. Steadier gold prices yield a lower Sharpe ratio, underscoring the metal’s value as a defensive asset and a useful complement to stocks in a diversified portfolio.
Volatility and Risk Profiles
Gold and stocks respond differently to market stress, and understanding their risk profiles can help you build a more balanced portfolio.
- Gold tends to show lower daily volatility. Historical data shows that gold’s annual price swings are typically smaller, reflecting its stability as a lower-risk asset. During economic crises or periods of financial stress, its value often holds steady or increases, offering a cushion against major market downturns.
- Stock prices fluctuate more sharply. Equities are sensitive to a wide range of factors, including earnings reports, interest rates, and investor sentiment. These influences can lead to sudden gains or losses, especially during periods of economic change.
- Gold often moves independently from stocks. Studies show a low or near-zero correlation between gold and the S&P 500. This means gold doesn’t usually follow the same direction as equities, helping to cushion losses when stock markets fall.
- Drawdowns and recoveries vary between the two. Gold can experience prolonged downturns but tends to recover steadily, especially during periods of inflation or economic stress. The stock market, while more volatile, often rebounds faster during bull runs after major sell-offs.
Liquidity and Costs
Gold, especially physical gold bullion, involves more friction. You’ll often face dealer markups and markdowns, called spreads, when buying or selling. Additionally, there are storage and insurance fees if you hold physical gold in a secure vault. These costs can reduce your overall return. To compare fees and services, explore our guide to the Best Gold Dealers.
Stocks are highly liquid and easy to trade. With most brokerage platforms now offering commission-free trades, investors can buy and sell shares instantly with minimal cost. Settlement typically happens within two business days, but many platforms provide immediate purchasing power.
Tax Treatment
Gold investments are treated differently by the IRS. Physical gold is considered a collectible, which means long-term capital gains (on assets held over a year) can be taxed at rates as high as 28%. If sold within a year, any gains are taxed at your ordinary income tax rate.
There are exceptions based on how you invest in gold:
- Gold ETFs and mining stocks are taxed like traditional securities. Gains from these are subject to standard capital gains rates (not the collectible rate) if held for over a year.
- Gold IRAs follow the same rules as traditional or Roth IRAs. This means gains may be tax-deferred (Traditional) or tax-free in retirement (Roth), depending on your account type.
Stocks offer more favorable tax advantages than physical gold. If you hold stocks for more than one year, any profits are taxed at the long-term capital gains rate: 0%, 15%, or 20% depending on your income level. Short-term gains (from stocks sold within a year) are taxed at your ordinary income tax rate. Many stocks pay qualified dividends, which are also taxed at the lower long-term capital gains rate, making them even more tax-efficient.
Ease of Access
Gold takes more effort to buy and manage. You can invest in it through physical bullion, gold-backed ETFs, or a Gold IRA. Each method comes with its own steps, costs, and storage needs. There are different ways to invest in gold depending on your goals and how much control you want over the asset.
Stocks are accessible to nearly anyone with a smartphone. Brokerage apps make it easy to open an account, fund it, and start trading in minutes. Features like fractional shares and auto-investing have also made stocks more beginner-friendly.
Gold vs. Stocks: What Should You Invest In?
Choosing between gold and stocks depends on your financial goals, time frame, and comfort with risk. Both are valuable asset classes, but they serve different purposes in a portfolio.
- Gold may be a better fit if you’re looking for diversification, want to hedge against inflation, or reduce drawdowns as you approach retirement. It’s often seen as a safer store of value during geopolitical instability or when you’re uncertain about the stock market outlook.
- Stocks are suited for investors with a longer time frame who are focused on growth and income. If you’re comfortable with short-term volatility and can stick with a long-term investment strategy, stocks offer opportunities for compound returns through capital gains and dividends.
Keep in mind, past performance doesn’t guarantee future results. For most investors, a balanced approach that includes both gold and stocks may offer better diversification. A financial advisor can help personalize your investment based on risk tolerance, retirement timeline, and investment goals.
Frequently Asked Questions
Gold often rises during a stock market crash as investors seek safe-haven assets. However, short-term price moves may vary depending on liquidity needs.
Gold typically outperforms stocks during inflation by preserving purchasing power. It’s seen as a hedge when rising prices erode returns on other assets.
The 7% rule suggests selling a stock if it falls more than 7% below your purchase price. It’s a risk management tactic to limit losses in volatile markets.
Have you recently bought gold bullion, opened a Gold IRA, or used a platform to trade precious metals? We’d love to hear about your experience. Email us at [email protected] to help shape our gold investing content. Your input will remain confidential.