Performance of Gold vs. 10 Year U.S. Treasury (July 2006 – June 2020)
Data comparing Gold and 10 year U.S. Treasury Yield (symbol: TNX) – Gold increased from 2006 to 2013 while yields (TNX) fell. Both moved sideways from 2014 to late 2018 when gold started rallying and yields plummeted to current levels.
Investors have often used bonds to diversify portfolio risk, but at the current interest rate level bonds do not offer the same level of risk diversification since the upside capital appreciation potential is insufficient. With the TNX yielding 0.68%, a drop to 0% would only offer 6% upside appreciation. Investors could look for gold to diversify a stock portfolio instead of relying on bonds. With gold touching on several dissimilar areas of the economy, it may make sense for investors who have concerns over geopolitical issues, the volatile energy market, and the constant threat of terrorism.
The below chart illustrates the correlation between gold and the S&P 500 (symbol: SPX) is not consistent. From August to November 2019, the two moved inversely of each other. In another example, starting in March 2019 both started moving together.
Performance of Gold vs. S&P 500 (July 1, 2019 – June 29, 2020)
“Gold is money, everything else is credit.”
― J.P. Morgan,
testifying to U.S. Congress in 1912