(Kitco News) - Persistent expectations that the Federal Reserve will continue easing interest rates and supplying global financial markets with liquidity have been driving both gold and equity markets higher.
However, this environment is also keeping inflation expectations elevated, and according to one market analyst, one of the two assets could come out even further ahead.
In his latest precious metals note, Mike McGlone, Senior Market Strategist at Bloomberg Intelligence, said that he expects gold to continue outperforming the S&P 500 as the ratio between stocks and the yellow metal hovers near a key support level.
The comments come as the S&P 500 is up nearly 16% so far this year and 38% from its April tariff-tantrum selloff. However, gold prices are up roughly 60% this year. Spot gold last traded at $4,195.30 an ounce, while the S&P 500 last traded at 6,842 points.
“At more than 2x GDP, the US stock-market wealth effect is the greatest in about a century, yet the S&P 500 is on the brink of breaching key support against gold,” he said.
McGlone noted that the S&P/gold ratio is currently hovering at 1.66 points, near its lowest level since the end of March 2020. While the S&P has previously held this support level, McGlone noted that the economic environment is slightly different.
Although the S&P 500’s value compared to gold is at low levels, McGlone noted that its valuation compared to GDP growth and global equities is elevated.
“Roughly 2.3x today vs. almost 1-to-1 about 11 years ago,” he said. “Some reversion in SPX/GDP and SPX/MSCI toward where SPX/gold is now might look like a minor blip on the chart, but it would have severe deflationary implications.”
At the same time, McGlone said that market volatility could also indicate that the precious metal may continue to outperform stocks. He pointed out that market volatility remains fairly subdued, with the Volatility Index (VIX) hovering below 18 points.
“What we find concerning is that gold never rallied at such a high velocity as in 2025, with stock market volatility so low,” he said. “The S&P 500 (SPX) rolling over vs. gold, despite subdued stock-market volatility, might suggest greater downside risks for the SPX/gold ratio when market complacency reverses. The timing is emphasized as volatility always mean reverts; it's a matter of time. For SPX/gold to avoid more declines, stock-market risk metrics might need to remain unusually subdued, a condition we think is increasingly unsustainable.”
The gold market has historically struggled to compete when equity markets rally; however, some analysts note that this time appears to be different, as investors are embracing gold as a diversification tool to hedge their equity risks.
Analysts also said that investors are shying away from U.S. Treasuries as an equity hedge because of the unsustainable rise in U.S. government debt.
