Gold, on the other hand, has been largely ignored, yet it is starting to regain attention. Rotation theory suggests that when one asset has been stretched for too long, capital may begin to flow toward the alternative. If that pattern repeats, the next few years could see gold outperforming stocks.
Why investors are watching this shift
- Stock valuations, especially in the U.S., look elevated.
- Inflation and currency debasement risks increase demand for hard assets.
- Gold has a history of performing well when confidence in financial markets weakens.
Because of this, a number of investors are overweighting gold (through ETFs like GLD) and gold miners (through funds like GDX) relative to stocks. Some add silver into the equation.
A balanced perspective
Nothing in markets is certain. Gold may fail to outperform, or equities may continue their run. For investors who do not want to sell their stock portfolios outright, one approach is to reposition within equities—keeping exposure, but tilting away from the most overvalued parts of the market.
An alternative stock allocation for the non-gold part
As a thought experiment, here is one possible equity mix that avoids the most expensive U.S. growth stocks and instead emphasizes regions and sectors with more reasonable valuations:
| Region / Sector | % | ETF | Rationale |
|---|---|---|---|
| Emerging Markets ex-China | 25 | IEMG | Growth from India, Mexico, Indonesia, lower valuations than U.S. |
| Japan | 20 | EWJ | Corporate reforms, attractive valuations, shareholder-friendly changes. |
| Europe (broad) | 20 | VGK | Exposure to developed Europe at cheaper multiples than U.S. peers. |
| Energy (global/US) | 15 | XLE / IXC | Hard assets, strong cash flows, hedge against inflation. |
| Industrials / Infrastructure | 10 | EXI | Benefiting from reshoring, defense spending, infrastructure projects. |
| Healthcare (defensive global) | 10 | IXJ | Stable demand, demographics, defensive anchor. |
Final word
This is not advice, just theory. Rotation may or may not happen. But if gold does gain leadership over stocks, holding a mix of gold, gold miners, and a diversified set of reasonably valued equity sectors could be one way to stay balanced.
