A divergence between gold (XAUUSD) and the S&P 500 (SPX) could spell trouble for stocks, according to Stifel Chief Equity Strategist Barry Bannister. During the past year, the precious metal has surged 90%, while the benchmark index has gained 15%. Similar episodes of gold outperforming stocks significantly have only occurred four times during the past 100 years, and the subsequent returns for stocks weren’t encouraging.
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“The S&P 500 was range-bound for years after the S&P 500 relative to gold crossed this threshold in the past,” wrote Bannister.
Gold Gains on Dollar Decline and Global Risks
Bannister added that gold’s outperformance may reflect an exit from fiat currency. That comes amid a weakening dollar, with the U.S. Dollar Index falling by 10.5% over the past year. The index tracks the dollar’s performance against a basket of major global currencies. Gold tends to benefit from a weaker dollar, as it becomes cheaper for foreign buyers.
Gold has also received boosts from rising geopolitical tensions, tariffs, persistent inflation, and risks to the Fed’s independence.