Gold vs. S&P 500: Which Is the Best Reference Value?
- ccancino3
- 1 day ago
- 4 min read
On August 15, 1971 President Richard Nixon announced on national television the suspension of the gold backed US Dollar. That event, known as the "Nixon Shock", marked the end of the Bretton Woods system, based on the dollar 100% backed and convertible to gold; this is when the era of fiat money began. Since then, confidence in governments replaced the metallic support that had guaranteed the value of money until then.
In the following decades, the Standard & Poor’s 500 (S&P 500), the stock market index that groups the 500 largest and most representative companies in the United States, has shown impressive growth when measured in dollars. But, if instead of dollars we use gold as a measure, by comparison, the picture is much less triumphant. This contrast forces us to ask an essential question: Are we measuring the performance with the adequate metric?
The Mirage of the Dollar’s Growth
At first glance, investing in the US stock market appears to have been the most profitable strategy. A chart of the S&P 500 since 1971 shows a steady rise, with temporary declines that have always strongly recovered.
The S&P 500 index
August 1971 - August 2025
As we can see in the previous graph, the S&P 500 index has grown more than 64 times (+ 6.425%) during the period between August 1971 (99 points) and August 2025 (6,460 points).
However, much of this growth is explained by monetary expansion and accumulated inflation. More dollars in circulation do not mean greater wealth. In many cases, this is a financial illusion that makes the market appear stronger than it actually is.
Gold as a Reference of Value
The following chart helps us compare the growth of the S&P 500 index and the price of gold in a single ratio: How many ounces of gold have been required to buy the S&P 500 index over the past five decades?
How many ounces of gold are required to buy the S&P 500?
S&P 500 Index / Gold Price (S&P 500 to Gold Ratio)
Aug 1971 - Aug 2025
As we can see, when the performance of the S&P 500 is measured in terms of ounces of gold, the narrative changes. In August 1971, the S&P 500 was worth the equivalent of 2.32 ounces of gold In August 2025, the S&P 500 is worth 1.91 ounces gold. The same index, which expressed in dollars seemed unstoppable, when measured in gold has not managed to maintain its value, reflecting a loss of -17.6% (shown with a red line) after more than 50 years.This is largely explained by the fact that the S&P 500 has not been able to recover from its sharp decline since 2000 (shown with a purple line).
Thus, an investment that apparently multiplied its dollar value several times, actually reduced its value under the gold metric. In other words, you would have had a higher return by investing in gold than in the “unbeatable” S&P 500 index:
Gold vs S&P 500
Jan 2000 - Aug 2025
As it can be seen in the graph above, gold has outperformed the S&P 500 by 30% since 1971. This happens because gold has maintained its historical purchasing power in the face of the multiplication of money in circulation, inflation and the devaluation of fiat currencies.
Money Supply Out of Control
It is not surprising that the period from 2000 to 2025, characterized by the drastic decline and unsuccessful recovery of the S&P 500 expressed in gold, coincides with the period during which the US almost quadrupled (+374%) its money supply of dollars in circulation (M2), which in simple terms means that 80% of the dollars in circulation today (i.e. 4 out of 5) were created in the last 25 years.
US Money Supply (M2)
Jan 2000 - Jul 2025
As it can be seen in the graph above, gold has outperformed the S&P 500 by 30% since 1971. This happens because gold has maintained its historical purchasing power in the face of the multiplication of money in circulation, inflation and the devaluation of fiat currencies.
Gold vs S&P 500
Jan 2000 - Aug 2025
Gold’s in a World of Excess
Although it does not yield dividends or interest, today, gold becomes a crucial part of an investment portfolio, due to its capacity to preserve value.
The contrast between measuring the S&P 500 in dollars or in gold highlights a truth that some may find uncomfortable: performance is relative to the metric used. If value is measured in a currency that is constantly depreciating, growth can be a mirage.
The "Nixon Shock" from 1971 transformed forever the way we understand money and value. Half a century later, the debate remains: Does it make sense to continue relying on the dollar as a measure of value, or should we recognize gold as the primary metric of value?
Adopting gold as the principal financial metric allows us to evaluate more realistically the true value of our heritage. It is not about dismissing the dollar and the financial markets, but to recognize that gold offers a more objective perspective of what long-term value means.
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