Gold ETF IAU Outperforms S&P 500 by 3-to-1 Ratio

The iShares Gold Trust ETF (IAU) has emerged as an unexpected standout performer in 2025, significantly outpacing the SPDR S&P 500 ETF Trust (SPY) despite the broader market’s strong showing. While SPY has posted impressive gains of nearly 15% year-to-date—making this a stronger-than-average year for the S&P 500—gold’s surge has made IAU the superior investment. The ETF’s performance has even trounced big-name tech stocks like Nvidia (NVDA), challenging conventional wisdom about where to find market-beating returns.

For cost-conscious long-term investors, IAU offers compelling advantages with $61.5 billion in total assets and low fees of just 0.25%, or $25 per $10,000 invested. Each share represents a fractional undivided interest in physical gold held in secure vaults by JPMorgan Chase Bank as custodian. The gold is allocated, meaning it is specifically identified and held in the trust’s name, providing investors with direct gold price exposure without the complications of buying, storing, or insuring physical bullion.

Multiple structural factors have converged to create what market observers describe as a ‘perfect storm’ for gold. The Federal Reserve’s decision to restart interest rate cuts, with one already implemented last month and two more expected by year-end, has been a primary catalyst. Each reduction in real yields automatically makes non-coupon gold more attractive by lowering the opportunity cost of holding the precious metal versus yield-bearing assets.

Simultaneously, the U.S. dollar has softened significantly this year, translating into higher gold prices and increased demand. This currency dynamic has been amplified by aggressive central bank purchasing, with institutions worldwide expected to buy over 1,000 tonnes of gold in 2025 as part of a multi-year trend to diversify away from dollar-heavy reserves. Central banks have now purchased over 1,000 tonnes of gold for three consecutive years, creating sustained demand pressure.

Geopolitical uncertainty, including tariffs, a U.S. government shutdown, and hot conflicts in two regions, has revived gold’s traditional role as the ultimate safe-haven asset. Additional supportive factors include flat mine supply despite price incentives, declining recycling flows as consumers hold old jewelry in anticipation of higher prices, and rising global debt-to-GDP ratios that maintain pressure on fiat currencies.

Major financial institutions continue to raise their gold price targets to keep pace with the metal’s upward trajectory. UBS projects gold reaching $4,200 per ounce by year-end, while some analysts have targets as high as $4,500 or more. Goldman Sachs has set an even more ambitious target of $5,000 for next year, implying a potential 25% gain from current levels around $4,000 per ounce—a return the S&P 500 is unlikely to match.

This optimistic outlook suggests that for IAU holders, the ETF may still be in the early innings of a structural repricing rather than the late stages of a cyclical burst. While gold can and likely will correct sometime in the future, analysts caution that holding cash and waiting for such a correction may not be a prudent strategy given the strong fundamental backdrop. The combination of monetary policy shifts, currency dynamics, and structural demand creates a more solid floor under bullion prices than typically seen during gold rallies.