A ratio of the two asset classes has dropped to its lowest level since 2020, says Aakash Doshi at State Street Global Advisors

A ratio of the S&P 500 index in terms of gold has dropped to its lowest level since the pandemic, highlighting a preference for safe-haven assets among investors and providing a warning sign for the U.S., as well as the global economy, according to a strategist at State Street Global Advisors.

"The sharp turn lower in the S&P 500/gold ratio in March is itself not a recession indicator," Aakash Doshi, global head of gold strategy at State Street Global Advisors, told MarketWatch. It does, however, "reflect increased investor demand for safe-haven assets such as gold, and a potential reassessment of U.S. growth exceptionalism and corporate earnings optimism."

In a recent note, he pointed out that in March, the mean ratio between the S&P 500 SPX and gold (GC00) dropped to around 1.9 times. That's how many ounces of gold it would take to buy the index. That compares to 2.3 times in December 2024 and a cyclical peak of 2.5 times last February, said Doshi.

The ratio of the S&P 500 index to the price of gold indicates how many ounces of gold it would take to buy the index.

On Tuesday, gold for April delivery (GCJ25) settled at $3,025.90 an ounce on Comex, up $10.30, or 0.3%. The front month contract traded higher so far this year and marked a record-high settlement of $3,043.80 on March 20. The S&P 500 index in Tuesday trading was down by less than 0.1% at 5,765.94, and has declined year to date.

Gold has outperformed U.S. stocks so far this year, with the three-month rate spread between the two asset classes marking their most significant gap in over two years, according to Dean Christians, senior research analyst at SentimenTrader, in a recent note.

"Traders are seeking hedges against perceived economic and geopolitical risks," said Doshi, noting that "elevated U.S. and foreign policy uncertainty has prompted weaker consumer sentiment, could challenge business investment, and supported higher inflation survey readings." U.S. data from the Conference Board Tuesday showed that the survey of consumer confidence fell to a more than four-year low of 92.9 this month, from 100.1 in February.

Time will tell whether the recent move in the S&P 500/gold ratio is a "real warning sign for the U.S. and global economy or a temporary positioning blip," he said. It's too early to tell if the recent decline in the ratio is a "structural trend."

The S&P 500 index in gold terms, however, has bounced off its March lows heading into the end of the first quarter, said Doshi. It could be the case that investors wanted to "de-risk and reduce leverage towards U.S. equities and add some positioning to a lower volatility asset like gold, so some of this might be driven by positioning and reallocation capital."

He cites the roughly 15% year-to-date rally in spot gold, meanwhile, to record levels north of $3,000 an ounce to both "physical and financial drivers."

A recovery in China's retail gold demand following the pandemic and ongoing emerging market central bank purchases of the metal have been "critical" in structurally supporting higher bullion prices, he said. The most important bullish factor this year, however, has likely been the surge in gold exchange-traded fund inflows, with western investors reversing a 3.5-year de-stocking cycle and increasing physical consumption through the gold ETFs for the first time since 2020, said Doshi.

All told, he said he finds the recent break lower in U.S. equities versus gold an interesting development, and one of the many data points, he wants to monitor as the market narrative evolves.