Recently, the price of gold has shown remarkable strength, consistently outperforming the returns of the S&P 500. On October 6, the price of gold historically broke through the $4,000 per ounce mark. Since the beginning of this year, its price has surged by an impressive 51%, far exceeding the 15.3% gain of the S&P 500. Even more notably, over the past two years alone, gold has accumulated a 116% increase, again surpassing the S&P 500’s 60% gain over the same period. This means that this millennia-old precious metal has delivered returns that even exceed those of the current stock market, which is being driven by the artificial intelligence boom.
The rapid rise in gold prices is driven by multiple factors. First, central banks worldwide, particularly those heavily reliant on the U.S. dollar, are actively seeking to diversify their foreign exchange reserves. By increasing their gold holdings to replace some dollar-denominated assets (such as U.S. Treasury bonds), they can effectively reduce their dependence on the dollar and mitigate the risks associated with its depreciation. At the same time, after years of strength, the U.S. dollar is gradually weakening against major currencies such as the euro, British pound, Canadian dollar, Japanese yen, and Chinese yuan, further enhancing the appeal of gold.
In addition to purchases by official institutions, the power of retail investors cannot be overlooked. Data shows that individual investors are entering the market in large numbers through gold ETFs and gold jewelry. Furthermore, demand from the technology sector, particularly from high-performance semiconductors and the development of artificial intelligence, has provided new growth drivers for gold prices.
In the face of gold’s justified price increase, investors should not blindly shift their entire portfolio to gold but should consider incorporating it as part of a diversified investment strategy. Directly holding physical gold (such as gold bars and coins) comes with challenges related to storage, security, and liquidity, while gold ETFs offer a transparent and relatively low-cost alternative.
Among the many ETFs, SPDR Gold Shares (GLD) and iShares Gold Trust (IAU) are two notable products. Both are backed by physical gold held by custodians, and purchasing their shares is equivalent to owning a portion of the corresponding physical gold. The former holds over 1,013 tons of gold, while the latter holds 484 tons. As gold prices rise, the net asset value of these funds has also increased significantly. SPDR charges an expense ratio of 0.4%, while iShares offers a lower rate of 0.25%. For investors prioritizing liquidity and security, these fees represent a reasonable cost.
Another approach is to invest in gold mining companies, with the VanEck Gold Miners ETF (GDX) being a representative option. This fund has surged by 127% year-to-date, reflecting the logic that, in a supply-demand imbalance, gold mining stocks may outperform the price of gold itself. It diversifies risk across different mining companies and geographic regions globally, rather than betting on a single entity, and distributes annual dividends. However, investing in mining stocks is more volatile and is better suited for investors with a higher risk tolerance who seek to go beyond mere “digital gold” investments.
Given the strong demand from central banks and retail investors, there is a solid foundation for gold prices to maintain their upward trend in the long term. However, investors must also remain cautious. The rapid short-term rise in gold prices also means that if major buyers slow their purchasing pace, the market could face a correction or sell-off risk.
Therefore, the most prudent strategy is to first clarify one’s investment preferences—whether to choose physical gold, gold ETFs, gold mining stocks, or a combination of these. Then, adopt a phased approach to building positions rather than making a heavy, one-time investment when gold is at a historic high of $4,000 per ounce. This way, investors can seize opportunities while effectively managing potential risks.
