In the run-up to the reversal of many of President Trump’s tariffs, we saw some true panic selling that turned into what can only be called panic buying: Investors eager to get back in as they realized the selloff was a buying opportunity.
And to no one’s surprise, tariff-related market drama has continued since then.
Last Wednesday’s bounce happened so fast I couldn’t get my response to the selloff published in time. Earlier last week I wrote, “Fortunately, this situation will not last forever. Stocks will ultimately recover their losses from this last week.” Then stocks did recover before those words could get published!
But the key thing to keep in mind is that, over time, stocks do move higher (though they don’t often post a single-day bounce as high as the one we saw last Wednesday!). So buying oversold stocks (and especially deep-discounted high-yield closed-end funds, or CEFs, like those in the portfolio of our CEF Insider service) and sticking with them through market turmoil is a smart move every single time.
After all, losses in the S&P 500 do disappear over time. They’ve done it after every single crash we’ve experienced before.
And there’s an important, but less obvious, fact about this that investors aren’t considering as much as they should: how this situation has affected two of the so-called “safe havens” that have been getting a lot of attention lately: gold and Treasury bonds.
Everything Was Crashing, Even Safe Havens
First, let’s look at how index funds tracking the S&P 500 (in purple below), gold (in orange), long-term Treasuries (in blue) and short-term Treasuries (in green) were doing before last Wednesday’s bounce.
I don’t need to tell you what’s happening in this chart: Trump’s very high tariffs were expected to cause two things: higher prices on goods (since those tariffs will be paid by importers, who will raise prices on the products consumers buy) and slower consumer spending (again, because of those higher prices).
As a result, most Wall Street firms raised their expectations of a recession in 2025. (For the record, I raised my expectations of a recession a month ago, so I’m glad to see the media and analysts finally come around.)
The chart above ends at the close of trading on April 8. Now, when we fast forward the tape to the close of trading on April 9, we see that all of these assets recovered, for the most part, with the S&P 500 seeing the most dramatic recovery of them all.
Note that gold surged too, and has continued to do so since. This, again, tells us that there is still some worry in the market about inflation, but the bigger question is: Is gold a good hedge? Should one have gold in one’s portfolio over the long term to protect against downturns like this?
Gold’s Long-Term Showing
To answer that question, let’s zoom out.
We see that, in the last decade, gold outperformed short-term Treasuries by a huge margin and did much better than long-term Treasuries, even considering their interest payments (these are total-return values, including all dividends and other income). Long-term government bonds actually lost money.
And these returns are all before we account for inflation. So much for Treasuries as a safe haven!
The underperformance of short-term Treasuries makes sense. After all, these bonds are liquid and, as you can see from that straight green line, low volatility. That leads us to a couple of takeaways around safe havens.
First up: Long-term US bonds are not a good hedge.
But did gold give us anything in exchange for underperforming stocks? If Treasuries aren’t a good way to diversify away from the aches of the market, is gold?
Well, gold collapsed alongside stocks between the time Trump announced his tariffs and his announcement reversing most of them. So in this case, the answer is no.
But over the long term, gold is also clearly not a great hedge, since it underperforms stocks. In other words, if you have it in your portfolio to hedge your stocks, it just means it’ll drag down your returns. Let’s drill into this point a bit.
Stocks Crush Safe Havens
If we go back 33 years (the earliest data I can easily chart for you), gold had a 6.9% annualized return, as of this writing, while stocks had returned 9.9% annualized. Compound interest means that this difference adds up: For every $10,000 you invested in stocks, you ended up with over $133,000 more in pure profits from stocks than from gold over this time period.
So, our second takeaway around “safe havens” writes itself at this point: Investing in gold will drag down your returns over the long term. And today is a particularly dangerous time to hold gold.
Gold’s Unusual Run-Up
Over the last three years, gold has massively outperformed stocks, with a 17.2% annualized return versus 7% for stocks. This makes sense, considering that the run-up over the last three years began when inflation spiked. Inflation worries have crowded the headlines ever since.
However, remember that gold’s long-term annualized return is 6.9%, meaning it’s outperforming the past by over double. Stocks, however, are underperforming their long-term average.
This means that, not only will investing in gold drag down returns in the long term, but gold is currently overpriced relative to its long-term trendline, and it is likely to revert to the mean. Stocks, on the other hand, are underpriced relative to their long-term trendline, and are likely to revert to the mean, as well.
Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report “Indestructible Income: 5 Bargain Funds with Steady 8.6% Dividends.”
Disclosure: none
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