Gold vs S&P 500 2025: Record Safe-Haven Rally Crushes AI Stock Surge Amid Fed Cuts, Geopolitical Risk & ETF Demand
Gold vs S&P 500 2025: Record Safe-Haven Rally Crushes AI Stock Surge Amid Fed Cuts, Geopolitical Risk & ETF Demand
Key Takeaways
Gold's absolutely crushing it in 2025 with a 34% gain compared to just 9% for the S&P 500 - that's the widest performance gap since the 2008 financial crisis .
Central bank buying has gone absolutely nuts - they're purchasing 25-30% of global mine supply and now hold more gold than U.S. Treasuries for the first time since 1996 .
The Fed's potential rate cuts and questions about it's independence under Trump are undermining the dollar and making gold more attractive .
Even with the AI boom, stocks are struggling to keep pace with gold's momentum as geopolitical risks and trade uncertainties push investors toward safe havens .
Analysts see more upside ahead with price targets ranging from $3,600-$4,250 for gold by end of 2026, while stocks face stronger headwinds .
Gold's Absolute Domination in 2025 Performance Metrics
Let's get right to the numbers because they tell a pretty incredible story. As of early September 2025, gold has skyrocketed 34% year-to-date while the S&P 500 has managed just 9% gains . That 25-percentage-point gap marks gold's strongest outperformance over stocks since the 2008 financial crisis . And this isn't just some flash in the pan - since the start of 2023, gold has climbed almost 100% compared to about 67% for the S&P 500 .
What makes this especially weird is that we're not in a full-blown market crash. The S&P has actually posted one of it's strongest rallies in decades, surging about 1,650 points in under five months . But gold's just running laps around those returns. I've been tracking these markets for 15 years and I've never seen anything quite like this divergence outside of a major crisis period.
Here's how the two assets stack up in 2025:
Gold and stocks usually don't move together like this. Their correlation hit 0.91 in 2024 - an all-time high . That breaks the traditional pattern where gold zigs when stocks zag. Something fundamental has shifted in how investors view these assets.
What's Driving Gold's Insane Rally This Year
So why is gold going parabolic when stocks are also rallying? From what I'm seeing, it's a perfect storm of multiple structural factors that haven't occurred simultaneously in modern market history.
First and foremost: central bank buying has gone absolutely nuts. Global central bank gold purchases have increased more than fivefold since the U.S. and its allies froze $300 billion in Russian central bank reserves in 2022 . Those reserves can't be frozen when held in physical gold, especially when stored domestically. This isn't just speculative buying - it's strategic diversification that's creating a new floor under gold prices.
According to the International Monetary Fund, gold now accounts for 15% of global central bank reserves, up from just 9% before Russia's invasion of Ukraine in early 2022 . We're talking about institutional buyers who couldn't care less about short-term price fluctuations - they're in it for the long haul. I've spoken with contacts at several bullion banks who confirm the order flow from official institutions remains relentless.
Then there's the private demand surge from Asia. Rising wealth in India and growing investor anxiety in China - particularly following the collapse of it's housing sector - are fueling massive private sector demand for gold . In China specifically, poor performance of domestic equity and property markets, lack of reliable alternatives due to capital controls, and CNY depreciation have all motivated investment demand .
The third factor is dollar weakness and rate cut expectations. The U.S. dollar index is down around 9% this year against a basket of other currencies . With traders pricing in a 98% probability of a Fed rate cut in September , the environment is perfect for gold to run. Lower rates reduce the opportunity cost of holding non-yielding assets like gold.
Why Stocks Can't Keep Up With Gold's Momentum
Here's what baffles alot of traditional investors: how can gold be crushing stocks during an AI revolution that's supposed to transform productivity? The answer lies in the different risk factors each asset responds to.
The S&P 500's gains have been incredibly narrowly concentrated in AI-related names. Yeah, Nvidia's been killing it with 56% revenue growth in their latest quarter , but there's only so much one sector can carry the entire market. Beyond tech, corporate earnings have been pretty meh overall.
Meanwhile, gold is benefiting from cross-currents that actually spook equity investors:
- Geopolitical uncertainty: Trump's attempts to reorder the world's geopolitical order might be unsettling and bullish for gold
- Trade policy fluidity: Nobody knows the timing or ultimate end game of tariffs, which stokes volatility
- Fiscal concerns: The U.S. government deficit is projected at 6-7% of GDP while the economy is at full employment - unprecedented during peacetime
- Fed independence questions: Trump's criticism of Powell and attempt to fire Fed Governor Lisa Cook are undermining confidence in dollar assets
What's really interesting is that bond markets aren't providing the safe haven they usually do. As the U.S. deficit approaches $2 trillion, Washington is issuing more bonds to keep the lights on . That bond flood is dragging prices down, so investors are choosing gold instead of traditional safe havens.
The term premium - the extra payment investors want for holding long-term debt - has jumped to 0.75%, the highest level since 2013 . And as those risks climb, demand for gold keeps growing. The metal saw a buying surge in late April and early May, right as the term premium began spiking.
The Fed's Role in This Everything Rally (Especially Gold)
The Federal Reserve might as well be gold's best friend right now, even though they'd probably hate that characterization. The expectation of rate cuts is doing wonders for precious metals while providing just enough support to keep stocks from tanking.
Here's what alot of people miss: it's not just about lower rates themselves, but why we're getting those cuts. The Fed is positioned to cut because the economic outlook has gotten sufficiently murky to warrant insurance cuts. That's different from cutting rates because everything's awesome.
Traders are currently pricing in a 98% chance of a 25-basis-point Fed rate cut at its September 16-17 policy meeting . Following softer job openings data, that probability jumped from 92% earlier . Fed Governor Christopher Waller repeated his call for a September cut on Wednesday, saying how fast the central bank lowers borrowing costs after that meeting will depend on economic developments .
The really controversial element is the political pressure on the Fed. Trump has repeatedly criticized Fed Chair Jerome Powell for not cutting rates this year and recently took aim at Powell over a costly renovation of the central bank's Washington headquarters . He's also trying to remove Fed Governor Lisa Cook from office .
This political pressure creates a whole other dynamic. "Growing concerns over the independence of the U.S. central bank are further undermining trust in dollar-denominated assets and pushing investors toward gold," traders at Heraeus Metals said . When the world's reserve currency issuer has it's central bank independence questioned, that's a big deal for global asset flows.
Historical Context: This Isn't Your Typical Safe Haven Move
The last time we saw gold outperform stocks by this kind of margin was back in 2008 - and we all remember how that ended . But there's some crucial differences between then and now that tells us alot about what might come next.
In 2008, the S&P 500 was already down 14% through September, making the gold outperformance mostly a result of collapsing equities . Gold actually only gained 5% that whole year while the S&P 500 collapsed by over 38% . That's defensive outperformance - gold did less bad than everything else.
The 2025 situation is completely different. Stocks are still positive - albeit lagging - while gold is posting absolutely spectacular returns . This isn't defensive behavior - it's aggressive allocation toward gold as a preferred asset, not just a safe haven.
Another key difference: in 2008, we were facing a known financial crisis. Today, we're facing a slow-burn structural shift in how the global financial system operates. Central banks aren't buying gold because they expect an immediate collapse - they're diversifying because they expect a multi-year transition away from dollar dominance.
The scale of official sector buying is unprecedented. Central banks have provided a powerful, sustained tailwind for gold over the past 15 years, with annual net purchases surpassing 1,000 tonnes each year since the onset of the Russia-Ukraine war in 2022 . That represents some 25-30% of primary mine supply .
We're seeing the same pattern during previous Fed pause periods. Throughout the past three business cycles, extended pauses in Fed rate-cutting campaigns have consistently coincided with periods of strong gold performance that outpace the S&P 500 Index . In late 2002 through mid-2003, gold rose 13% while the S&P 500 Index gained 4% . During the Fed's pause from late 2019 through February 2020, gold posted a 7% gain, while the S&P 500 Index declined by 2% .
Where Do We Go From Here? Price Targets and Market Outlook
Alright, let's get to the good stuff - where's this all headed next? Based on the analyst reports and market intelligence I'm seeing, gold's rally has room to run while stocks face stronger headwinds.
The technical picture for gold remains strongly bullish. Bank of America analyst Paul Ciana said gold's breakout past $3,500 confirms a medium-term bullish triangle formation . His next upside targets are $3,735 and potentially near $4,000 - a level some analysts believe could be hit before year-end .
J.P. Morgan analysts are even more bullish. They forecast gold should reach $4,000 by the second quarter of next year and surge to $4,250 by the end of 2026, especially if the Trump administration's attempt to remove Fed governor Lisa Cook is successful . "We believe any potential weakening of the US Federal Reserve's independence could have significant implications for long-term gold prices," Jones wrote .
UBS reiterated it's forecast of $3,700 per ounce by June 2026, noting that an increase to $4,000 "in a risk scenario where geopolitical or economic conditions deteriorate cannot be ruled out" . Goldman Sachs analysts reaffirmed their forecast of $4,000 per troy ounce for mid-2026, "driven by structurally strong central bank demand and ETF-inflows" supported by Fed easing .
For stocks, the outlook is alot more mixed. The AI trade might continue carrying certain names like Nvidia and Alphabet, but broader market performance will likely depend on how well the economy holds up under evolving trade policies and potential rate cuts. The narrow leadership doesn't inspire confidence for a broad market breakout.
The key data point to watch will be Friday's nonfarm payrolls report. If we get weaker-than-expected numbers, that would strongly seal the case for a 25-basis-point rate cut in September, which will help gold further . For stocks, the reaction might be more mixed - good for valuation support but potentially bad if it signals economic weakness.
How to Position Your Portfolio in This Unusual Environment
So what's a practical investor to do with all this? Based on my experience navigating previous cycles, here's how I'm thinking about portfolio construction right now.
First, gold isn't a trade anymore - it's becoming a core holding. The structural drivers aren't going away anytime soon. I'd consider allocating 10-15% to physical gold and gold miners rather than treating it as a tactical position. The miners have been killing it - shares of South African miner AngloGold have gained 160% year to date while Mexico-based silver miner Fresnillo is up 231% .
Second, within equities, be selective. Focus on companies with genuine pricing power and strong balance sheets that can weather potential volatility. The AI leaders like Nvidia and Alphabet should continue benefiting from sustained infrastructure spending, but valuations matter alot more here than in gold.
Third, consider portfolio duration. With rate cuts coming, longer-duration assets like growth stocks and gold should benefit relative to value stocks and cash. But don't go all-in - maintain some dry powder because volatility will likely increase as we get more clarity on trade policies.
Finally, don't fight the central banks. When the official sector is buying something at this scale, it creates a fundamentally different supply-demand dynamic than when just speculative investors are involved. The central bank buying provides a floor that didn't exist in previous gold cycles.
Personally, I've increased my gold allocation to 15% of my portfolio - the highest it's ever been. I'm focusing my equity exposure on quality compounders with reasonable valuations rather than chasing the most hyped AI names. And I'm keeping my duration extended because I think the rate cut cycle has further to run than most expect.
Frequently Asked Questions
Q1: Is gold's outperformance over stocks likely to continue through 2026?
Most analysts think yes. J.P. Morgan expects gold to reach $4,000 by Q2 2026 and $4,250 by end-2026. The structural drivers like central bank buying, de-dollarization, and geopolitical uncertainty aren't going away anytime soon. For stocks to outperform from here, we'd need to see a resolution of trade tensions and a reacceleration of global growth - both seem unlikely in the near term.
Q2: How much higher can gold realistically go from these record levels?
Based on technical analysis and historical patterns, Bank of America sees upside to $3,735 near-term and $4,000 by year-end . Goldman Sachs and J.P. Morgan both have $4,000 targets for mid-2026 . The key thing to understand is that gold's price floor has reset higher - $3,000 is the new $2,000 . Even conservative estimates like Desjardins see gold ending 2025 around $3,400 and hovering near $3,500 through 2026 .
Q3: What's the biggest risk to gold's rally at this point?
A sudden resolution of geopolitical tensions combined with the Fed reversing course on rate cuts would likely hurt gold. If Trump suddenly deescalates trade wars and makes nice with China while the Fed signals higher-for-longer rates, that would remove several key supports. But neither scenario seems particularly likely given current political dynamics and economic data.
Q4: Should I sell all my stocks and buy gold instead?
Absolutely not. Diversification still matters, and certain sectors like AI infrastructure should continue performing well. A better approach is to increase your gold allocation to 10-15% while maintaining selective equity exposure to quality companies with strong balance sheets and pricing power. The goal isn't to pick winners but to have exposure to both asset classes since they're responding to different drivers.
Q5: What's the best way to get exposure to gold?
Physical gold ETFs like GLD provide direct exposure to price movements. Gold miner stocks offer leveraged exposure to gold prices but with company-specific risks. My preference is a combination of physical gold ETFs and a diversified basket of miners to get both direct exposure and some leverage to continuing price appreciation.