Market Matchup: Stocks vs. Gold vs. Bonds in the 21st Century

MIKE BARNES

Welcome to America’s Gold Authority Podcast. My name is Mike Barnes. We’re starting a new podcast series looking at the global gold forecast. Today we’re going to compare the performance of gold, stocks, and bonds in the 21st century. We’re going to see what that tells us about the direction of prices through the end of this decade and what type of portfolio might perform best for that environment. Joining me now is Philip Diehl, 35th Director of the U.S. Mint, President of U.S. Money Reserve. And Philip, I know you love looking at all of these numbers. I think it’s kind of easy for most of us, I think, when things are going well and everything’s going up, whether it’s gold or stocks or bonds, everything, it’s pretty easy. But it’s difficult when there are problems in the economy. And that’s the first thing I want to talk about. I know you have some graphs to look at. Let’s look at gold, stocks, and bonds performance during four economic shocks.

PHILIP N. DIEHL

Yeah, what we’re going to do here is we’re going to go through uh three different times of periods during the 21st century. And we’re going to look at how gold, stocks, and bonds, how they compare during those periods, how they perform. And the first one, like you said, is during four different periods when we went through economic shocks. And three of those are during recessionary periods during the 21st century. And one is during an inflationary period, during the recent one following the pandemic. I’m going to put on my glasses here so that I can see better on these graphs. They’re uh they’re all in the same format. Uh, we’re going to go through all these periods and we’re going to look at multiple graphs. They’re going to be simple because they’re all in the same format. Gold is going to be shown in, uh, believe it or not, a gold bar. Uh, we’re going to look at stocks. They’re going to be in a blue bar, and bonds are going to be in a green bar in each one of these graphs. So they’re going to be real simple. And when the bar is above the black line, that means they went into positive territory. And if they’re below that black line, that means they, and during that period, they ended up in in negative territory. So let’s look at the first of those periods. The first of those periods is during the dot-com uh bust. And it’s very clear that gold uh prevailed during that period. It went up uh that during that uh two-year period from 2000 to 2002 by 30 percent. Uh, and uh and stocks really took a beating, almost a 50 percent, a 45, 44.7 percent decline during that two-year period. And bonds went up not as well as stocks did, uh, but uh performed well. And that’s that that’s really the typical kind of historical performance that we think of bonds playing as being the counter to um to stocks uh in a portfolio, protecting a portfolio against stock losses. But we see here that gold did that better during the dot-com loss. And we’re gonna see that that’s a a uh a recurring theme here, that gold has outperformed bonds in uh and out of um these uh crisis periods and in other periods as well. So let’s move on to the next uh crisis period or shock period. And of course, that was the Great Recession uh in uh 2007 and 2008. And again, we see that really strong performance of gold during that period, uh 2007 through 2009, 14% increase, while stocks took this huge hit of about 37%. Again, bonds countered the uh the stock drop, but not as well as gold did. Gold outperformed uh bonds and playing that counter-cyclical role. Now we go to the third crisis period, and that was the pandemic shock of 2020. And we see gold outperforming. It was an unusual situation where stocks performed well, a 10% increase during 2020, but gold outperformed that and outperformed bonds as well. And then we look at the most recent inflationary period uh in 2022, in which stocks fell by 18%, bonds also fell by 13%, again uh bonds failed to out to counter the stock uh market uh fall. But we see that stock held their value during this period of time, again, protecting assets in a portfolio during a crisis or a shock event in the marketplace. So I think this is the this is the lesson to take from these four graphs is that in all four of these shock periods, gold performed the function that bonds failed to perform, and that is protecting uh a portfolio against a stock market decline during an economic shock. And when you look at these four graphs, you see that while bonds in the early period, in the first half, the first decade of this uh 24-year period, bonds did provide that protection uh not as well as stocks did. By the second half of this decade, they failed entirely. Bonds failed entirely to protect uh the portfolio while gold continued to do so. And we’re gonna see in these next graphs that this trend continued, and that’s crucial for uh for people to understand.

MIKE BARNES

Before we look at the next graphs, I have to tell you these graphs you’re showing me are giving me flashbacks because I remember especially the the dot-com and the great recession, watching my 401k and IRA numbers go down and down and down. We talked about the 60, 2020 investment with stocks, gold, and bonds. If we see something, if advisors are telling us this could be coming, a shock period could be coming, do we want to adjust that 60, 20, 20 and maybe make it 50, 40, 10 or something like that to emphasize more gold than just the 20%?

PHILIP N. DIEHL

Well, absolutely. And and we’re gonna get into this very issue as we get into uh this series of episodes of uh podcasts a little further down the road. I’m going to say this over and over again, and that is the 6040 uh portfolio is dead, and it’s been dead for years. We can see that in these graphs right here. The 6040 portfolio still had life in it from uh 2000 to 2010. Even though gold performed better than bonds, there was still some life in it. Because, of course, gold in a portfolio during this time did not uh produce a dividend. So if you wanted a dividend uh you know to produce some income, then bonds played a role, but it did not generate uh wealth during that period of time like uh like gold did. But you were actually losing wealth after that period of time, after 2010. Gold was generating tremendous wealth during this period of time, during that early decade and afterwards, as we’ll see as we get into these podcasts. And so that’s a really important point. And the question of how much you, how much gold you want in your portfolio, and how many, how much bonds you want, and how much stocks you want really depends on your strategy and where you are in life and how uh risk tolerant you are. And we’ll get into that as we get into these episodes, too. Those are those are sort of complex questions that really only you and your financial advisor can uh answer. But what I want to address is some really important myths that um that many retail investors continue to hold, that I want to bust. And it’s shocking to me that really intelligent investors. I talk to friends who are really uh who are really well educated and who tell me that their financial advisors are still telling them that they need to build their portfolios around a 6040 model. And I shake my head. And it was only a year ago when some of the large uh advisors, retail advisors had begun, really began to come out and and say uh the you know the fact that a 6040 portfolio, well, we really need to look at something else like a 60 2020 portfolio. And I think that’s where investors really need to start is with a 60, 2020 portfolio, and then work from there, not with a 6040 portfolio, uh, and look at options from there. And we will get into that in uh future episodes, but right now I want to I want to move on to uh look at gold and stocks and bonds in other uh scenarios in the economy over the course of the 21st century and to uh orient people to how it is how they have performed in the past.

MIKE BARNES

The next thing to talk about, I think, requires some strategy and some patience because that’s a couple of slow growth periods. There is growth, but it’s slow.

PHILIP N. DIEHL

Yes. What we’ve looked at so far is really sort of the easy case. We we know that everybody sort of knows that gold performs well in hard times, and stocks suffer in hard times. I think this last set of graphs, the surprising thing, is how strongly gold has outperformed bonds uh during those periods of time, how really stocks have crushed bonds over the entire period of the last 26 plus years during those hard times, and how bonds have failed in their basic mission of offsetting uh those losses, and how gold has stepped into that role. But what we find in the next set of graphs is that gold has also performed extraordinarily well during um periods of weak economic growth. And what we see here in these graphs is that there have been two periods of weak economic growth, and both of them in in the period of the of the teens. Uh one is the is the period of the post-uh-global financial crisis in the early teens, in which uh from 2010 to 2012 uh we saw this remarkable period in which uh gold grew during this two to three year period by 52 percent, while stocks grew by only about 34 percent, while bonds grew by about 20 percent. So really we think during even weak economic periods, you would expect bonds to perform um for stocks to perform better than this, but we had growth uh in gold prices far outperforming uh stocks. And then we have the second period where we had uh we had a slow period during the uh industrial recession, but where there was some economic growth in 2015, very modest growth in stocks of 1.4 percent. We had basically flat growth in bonds of about a half a percent, and gold suffered during that period of about a 10.4% loss. So uh gold did take a hit during this period while uh bonds and stocks remained essentially flat. And then uh I think we can move on from there to a much more interesting uh period of strong economic growth, uh, Mike, in which we have four periods during the last 26 years of strong, fast economic growth. And I’ll just move on to those periods, those uh, and which we would really expect stocks to strongly outperform both gold and bonds. Stocks during periods of fast economic growth. We really, you know, we expect stocks to boom during those periods, gold to underperform bonds, uh underperformed stocks also underperform bonds. And so let’s look at these four periods. Uh, one is during the mid-20s and 2000s uh expansion from 2004 to 2006. We’re surprised by the outcome here. Uh gold outperformed stocks, stocks did well during this uh three-year period, about a 35% increase in stocks, but again, gold outperforms stocks by with a 55% increase. Uh bonds increased by about 11%. In the second period, uh we have a late cycle tech boom between 2017 and 2019. Stocks do outperform here about 53 percent, but gold performs uh you know respectively here with a 53 with a 31.5 percent increase. We had the AI tech boom between 2024 and 2026, in which uh where we’re that we’re living in right now, where we’ve had this huge tech boom, in which stocks have grown by 90 percent, but uh gold has performed extraordinarily well too, increasing 50 percent. And then we have the period of the boom to no more, uh what we’re calling normalization between 2021 and 2023, in which stocks rose 33 percent, but gold rose nine percent as well. So these are these are periods where uh you might expect gold to actually fall in value during these big economic booms, but gold has risen in all four periods and risen in two of them by over 50 percent. So these are really kind of surprising results, although stocks do outperform in uh three of the four periods.

MIKE BARNES

Is it easy for you to see this coming, to know what’s gonna be happening because of your wealth of knowledge in the economy? Or are you like the rest of us kind of guessing like what’s gonna happen here? I don’t know if I should load up on stocks, if I should sell everything, put it all into gold. It’s hard to decide what we’re supposed to do.

PHILIP N. DIEHL

What we know from history is what is crucial is to have a balanced portfolio. You never know what is going to happen. You can look at history, and there are lessons to learn from history. There’s no doubt about that. That’s what what we’re doing here is we’re looking back at history and we’re asking, what can we learn from what has happened over the last 26 years? And one of the lessons that we’ve learned from looking at this is that the myth that that there’s a myth that bonds offset losses during um economic downturns, offset the losses of from stocks on a reliable way. That is no longer the case. You can look through the performance of bonds and you can see that this offsetting dynamic that used to be true back in the 20th century has no longer happened. We talk about that as being a uh a negative uh correlation. That negative correlation where bonds and stocks tend to move in opposite directions, where they they act as hedges against each other, that uh negative correlation has been lost. Now they tend to move together, they don’t hedge. And gold has taken over from bonds as a much better uh hedge. So that’s one very important lesson to learn from this. That gold is a much better, has become a much, much better hedge than bonds have. The other thing that we’ve learned is that gold has become a source of not just a hedge, but has become a source of wealth generation. It’s not just a store of value, a way of protecting wealth, but it’s also become a significant way of growing wealth. And this next set of graphs is really going to uh show that. This next set of graphs, I’m going to get to in a minute, is going to summarize all these other graphs. It’s going to show what the total outcome was over the course of these 26 years from all of these other graphs. And I want to get to that in a moment, but I also want to talk about the other lessons that we should draw from this. The other lesson that we really want to take from this is diversification is crucial. But if at the be if we knew what the outcome was from this 26 years, if we could go back in time and we could only choose one asset class to invest in, then and we knew what the outcome was, we could only invest in bonds or stocks or gold. We know from looking at this that the asset class we would invest in is gold, because gold consistently performs in every one of these uh economic regimes, whether it’s the crisis regime, the slow growth regime, or the fast growth growth regime. Stocks perform extraordinarily well in the fast growth regime. They perform pretty well in the slow growth regime, and they don’t perform well. They crash during the economic crisis regimes. But gold performs well across all of them. Bonds have a very mixed record, and when they perform well, they don’t perform real well. They have a modest performance, and we’re going to see that in just a minute when we move on. Those are really the lessons to take from the graphs that we’ve seen so far.

MIKE BARNES

I think you’re clearing up a lot of things for a lot of people, because again, there’s so much confusion out there and not sure exactly what to invest in. And seeing this in the graphs, that it is destroying some mess, but gold is so, so, so powerful, especially over the last 26 years, going to wrap. It up in a bow now and show how the overall performance is for so many things.

PHILIP N. DIEHL

Yes. And you know, they always say past performance is not an indication of future performance. And that’s always true, although past performance is an indication. It is meaningful. Past performance is meaningful. And especially past performance, recent past performance does tell you something about near-term performance. You can’t, you know, count on it, uh, but it does tell you something. I mean, you know, the past performance of a football team does tell you something about how they’re likely to perform for the rest of the season, unless there are injuries. You have to, you know, always account for that. So I will tell you, watching the Kansas City Chiefs for the last five games is going to tell me something about how they’re likely to play in the next three or four. Although I do take into account that two of their top receivers are out for uh a while, maybe one of them for the season. So this is how I look at uh the market too, especially uh gold and you know, in general, gold stocks and bonds, and in particular bonds uh these days. One of the things I uh I also do is, you know, I look at the experts. I don’t just look at my own opinion and I run models, but I don’t just look at my own models, I look around at what the other experts, and there are other experts that I recognize know a lot more than me. And I look at what they have to say, and later in some of these episodes, I’m gonna bring in their opinion, and I’m going to show uh our viewers, our audience, what they say about what the future prices look like. And we’re gonna bring all this information together to check uh my view and other people’s view about where gold and stock prices in particular are likely to go. I think one of the big questions these days is that people are wrestling with, and I wrestle with every day, is how fragile is the stock market these days? I ask that question every day. And it’s because of the of AI. AI, there are so many different opinions, and they are so radically different about AI. I’m one of them, as being built on a very fragile foundation and getting more fragile by the day. And there’s so much money to be made and being made on AI. And the potential for wealth, not just for individuals, but for society, is so fantastic. Um, and I do believe that the uh wealth and the future for us is huge in AI. But I also fear for the future uh that AI could represent, both in terms of the future for humanity, but I also fear for the economic future and the financial future for us that AI represents, both short term and long term. And we’re gonna wrestle with uh what that means in the short term, and short term I mean like in the next several years, uh, and what that could look like, and what it means for gold, and what it means for our financial future. And I’m I’m not gonna come to an absolute conclusion, but I what I do want to do, I’m gonna, you know, say what my opinion is, and I’m gonna talk about you know what other people see, but I’m gonna probably lay out a couple scenarios for people to weigh, and we’re gonna look at other people’s opinions as well. But there are definite implications for both stocks and for gold in those scenarios, and we’re gonna look at those. Uh, but I’m not gonna I’m not gonna claim to be a guru and tell you what the outcome is gonna be. I’m not that smart and I’m not that much of an expert, but I’ve spent a lot of time uh looking at these issues. But before we get into that uh down the road, what I want to do is summarize what these graphs tell us about uh what gold and stocks have done over the last 26 and a half years here in the 21st century. So uh in these graphs, we have two graphs here on this last page. Okay, the first one shows the average return by economic regime. By economic regime, we mean the shock period, the slow growth period, and the fast growth period. And what we see is that in the shock period, gold far outperformed stocks. That’s no seek that’s no surprise there. We know shocks performed very poorly, lost, lost ground during that period. And we also know that over those four shock periods that gold far outperformed bonds. During the two slow growth periods, we know that gold outperformed stocks during those two periods, and during the four fast growth periods, stocks outperform gold, but not by as much as we expected, uh by 52% to uh what is that, 35.6 percent. All right, and then the last graph, it shows us the total annual return for the entire period for all of the regimes if you had invested uh at the very beginning of the period in gold and stocks and in bonds and held the money through all of the period, how much your annual returns would have been through the shocks, through the slow growth period, and through the fast growth period, your annual returns would have been 8.8% for gold, five point eight percent for stocks, and four percent for bonds. Now, that seems like an extraordinary difference in gold and stocks. And how can it be that large? And the reason is you lost so much money during the down periods for gold, I mean for stocks, you lost so much money during the down periods for stocks that you had to claw back all that money from those losses before you could begin to uh make money. And uh even though you performed so well during the gains, during the strong growth periods, you never made it up, and so you had this really strong performance in gold because it continued to grow throughout this period, the entire 26 years, and had this much stronger growth of 8.8 percent uh per year compared to stocks. That really adds up. It adds up incredibly over the course of 26 years. So, again, like I was saying, if you knew what the outcome was going to be, you would have chosen to put all of your money into gold rather than stocks. Now, of course, we would never recommend, even if you knew that was the outcome, we would have we would never recommend you’d put all your money, distribute all your money in that way. Because we always recommend a balanced portfolio between gold stocks and bonds. And most people want to have some dividends being distributed for income and want to have have some balance in their portfolio, and we definitely recommend a balance like that. And as we were saying, uh, Mike, we do recommend that people start with a uh portfolio of a 60 2020, uh, when they’re planning a portfolio and work off of that, and depending on their risk profile and and uh their objectives.

MIKE BARNES

But I think that last graph is a great example that even when you’re playing the long game, you got to make sure your portfolio is diversified enough to where that it comes out in the best interest for you. Absolutely. That’s right, Mike. And you’ve done a great job being a mythbuster today. Thank you, Philip Diehl. Thank you, Mike. We appreciate all that you’ve told us today. It is the global gold forecast. That’s what we’re gonna be talking about over the next several weeks as we’re looking at the future. And are you diversified in the right way? Do you have your investments in the right order? Is everything gonna be okay for what’s coming in the future for you? That’s all the time we have for today’s episode. On behalf of all of us here in the U.S. Money Reserve Studios, thank you for tuning in. If you have any questions or you want to learn more about today’s episode, you can call the number in our episode description and speak with one of our friendly account executives. They’re gonna be more than happy to answer any questions you may have about precious metals and the strategic role they can play in achieving a secure and comfortable financial future. I’m Mike Barnes. We will see you next time on America’s Gold Authority Podcast.