Why Gold May Be a Better Investment than Stocks for 2025

As we look to the investment landscape of 2025, the prevailing sentiment in commodities markets suggests that gold presents a compelling opportunity for serious investors—particularly in comparison to U.S. equities. Historical patterns over the decades indicate that precious metals have cycles of bull and bear markets, and based on current conditions, a bullish stance on gold (GC00) is warranted.

Gold’s Historical Cycles

To understand where gold may be headed, it’s crucial to look at its past performance. Since 1980, gold has experienced several distinct cycles. For instance, after peaking at 850 in early 1980, it entered a bear market until it bottomed at 285 in 1985. Following a recovery, gold reached new highs in 2004 before hitting another record in 2011. Fast forward to early 2024, when gold broke through the $2,100 mark, and the ongoing rally suggests that this upward trend could continue.

Currently, gold appears to be forming what is known as a “saucer-shaped” multi-year base against various regional stock indices. Although the gold-to-Dow ratio has been affected by the recent strength in U.S. stocks, both the gold/EAFE ratio and the gold/emerging markets ratio are demonstrating signs of relative strength, positioning gold favorably in asset allocation models.

Technical Indicators and Breakouts

Recent technical analysis supports a bullish outlook for gold. Not only have gold prices rallied to all-time highs in U.S. dollars, but they have also seen strong performance against almost every major currency. The strength of gold against currencies traditionally viewed as stable—such as the Swiss Franc (CHFUSD)—further reinforces its appeal as a safe-haven asset.

Current sentiment indicators also exhibit a lack of frothy speculation, typically observed at market peaks. The silver/gold ratio, which is often used to gauge speculative interest in precious metals, has not exhibited major spikes, signaling that market sentiment regarding gold has not yet reached an extreme. Even with some recent corrective actions in gold prices, the overall technical picture remains robust.

Inflation and Gold’s Role

Another critical aspect influencing gold’s attractiveness is its role as a hedge against inflation. Recent reports indicate that the disinflationary trends observed in the United States may be fading. Significant components of the Consumer Price Index, particularly core services excluding shelter, are showing increases that remain above the Federal Reserve’s 2% target. This could suggest an environment where inflation expectations will begin to rise, benefiting gold as an asset class.

With Fed Chair Jerome Powell’s recent remarks indicating a more neutral policy stance, it appears that further rate cuts may be constrained by the current economic indicators. Incoming economic data will be pivotal, especially against the backdrop of potential fiscal measures from the incoming administration that could spur inflationary pressures.

Monitoring Gold’s Correction

As we observe the market landscape, it is essential to tactically pinpoint when to accumulate gold. Historical data suggests that gold typically finds a bottom when it retreats 2% below its 50-day moving average—something that has already occurred in this cycle. Additionally, examining the health of gold mining stocks, represented by the VanEck Gold Miners ETF (GDX), reveals that these stocks are currently in an oversold condition. The gold miner-to-gold ratio is nearing historical lows, although it hasn’t yet shown extremities indicative of past bottoms.

Investors should also keep an eye on the U.S. Dollar Index (DXY), which has rallied post-election. Should it face resistance and decline, this could create favorable conditions for gold prices, as a weakening dollar often correlates with rising gold values.

A Bright Outlook for Gold

In conclusion, the technical landscape for gold is promising, with multi-year breakouts across different currencies signaling strong long-term prospects. Additionally, as macroeconomic conditions suggest a reacceleration of inflation, gold is likely to outperform other asset classes—including equities. Serious investors should consider accumulating gold as part of a diversified investment strategy, as it stands to deliver superior returns in the coming years.