Analyzing gold’s price cycles and its volatility compared to US equities can help determine whether gold still has room to run after its record-setting prices in 2024.
Gold’s record price gains in 2024 have some investors cautious about the gold market outlook for 2025. Is it too late to buy gold?
Importantly, we view gold as a strategic asset that can play a critical long-term role in portfolios by providing:
But there are occasional regime shifts when gold also can serve as a tail risk hedge in addition to a potential source of alpha.
And it’s likely that 2024-2025 represents such an environment, especially if the multi-year global gold ETF redemption cycle is in the midst of reversing to inflows.
Gold bull markets typically last for two to three years, on average.1
We analyzed annual log-normal spot gold price returns since 1985. We capture the first instance of gold market returns exceeding 15% for the entire calendar year, T.2 Those six years in our dataset were 1986, 1993, 2002, 2005, 2009, and 2019. We then looked at corresponding price changes in the subsequent year, T+1 (1987, 1994, 2003, 2006, 2010, and 2020). The data shows that average gold price returns in year T of 18.4% were followed by mean returns of 17.8% in year T+1.3
Interestingly, median returns in year T+1 were 4.3 percentage points higher than in year T. Indeed, in only one instance were gold returns in T+1 less than 15%. Gold posted a modest decline of -1.9% in 1994.4
Bottom Line: In the past four decades when gold prices rallied more than 15% in a given year, they increased beyond 15% in the next calendar year, on average (Figure 1).5 Note: The annual log return for gold in 2024 was 24.1%. The simple return was 27.2% and the real return 21.4%.6
Figure 1: Annual Gold Spot Log-normal Returns After Year T Returns >15%
Years | Gold Spot Log-Normal Return in Year T (%) | Gold Spot Log-Normal Return in Year T+1 (%) |
---|---|---|
1986-1987 | 17.4% | 21.9% |
1993-1994 | 15.5% | -1.9% |
2002-2003 | 22.1% | 17.7% |
2005-2006 | 16.5% | 20.8% |
2009-2010 | 21.8% | 25.9% |
2019-2020 | 16.8% | 22.4% |
Mean | 18.4% | 17.8% |
Median | 17.1% | 21.4% |
Source: Bloomberg Finance, L.P., State Street Global Advisors as of December 31, 2024. Past performance is not a reliable indicator of future performance.
This historical analysis speaks to the nature of the typical gold investment cycle. Bullion price spikes are almost always a function of a shift out in the gold aggregate demand curve. For the supply/demand imbalance to resolve — be it physical or financial — it typically takes time for markets to respond.
On the physical side, this includes lags in new mine supply, a sluggish response in gold recycling activity, or a slow rationing of gold consumer demand in response to higher prices. On the financial side, broader macro trends do not typically ebb and flow in weeks or months but over periods of years. Rotational investor flows may also take time to adjust.
That makes the start of 2025 particularly interesting, as it follows a strong 2024 for both US equities and gold. Indeed, record US equity market valuations are a key tactical reason we like holding gold in 2025. The S&P 500 has not had a correction since 2H 2023,7 and we think gold is still a relatively cheap portfolio hedge. On the back of strong price gains for both stocks and gold in 2024, the S&P 500/gold ratio is still trading above its pre-pandemic 20-year mean of 2.1x.8
Given the Trump administration’s proposed changes to trade and fiscal policy, as well as prevailing geopolitical risks, gold seems well-suited as an “uncertainty” hedge. We also believe the macro volatility compression theme is poised to waver in 2025, which can favor gold overlays.
Looking at market volatility data over the past four decades, gold prices have been about 1.3 points less volatile than prices of large-cap US equities.9 But during periods of financial contagion and stress, gold historically has shined its brightest. In the 26 times since 1985 when monthly data shows US equity volatility shocks, defined as realized volatility of more than 30%10 (Figure 2), gold’s price volatility was 22 points lower than that of equities.11
Recent examples of gold playing a role as a “low vol” asset during periods of extreme financial uncertainty include the 2020 pandemic and Russia’s 2022 invasion of Ukraine. While we are not predicting a similar volatility spike this year — as such events often appear at random — prevailing uncertainty is likely to cause volatility to drift higher. And that supports casting gold in both tactical and strategic roles in portfolios in 2025.