If You Had Bet On Gold After The 1971 Nixon Shock, You'd Have Beaten The S&P 500 — Unless You Did This One Thing

It was the summer of 1971. The United States was embroiled in the Vietnam War, inflationary pressures were building, and global confidence in the U.S. dollar was faltering.

On August 15, President Richard Nixon addressed the nation and made a historic announcement: the U.S. would suspend the convertibility of dollars into gold, effectively ending the Bretton Woods system.

The move—now known as the "Nixon Shock"—broke the last tie between paper money and the precious metal, inaugurating the era of floating fiat currencies and sparking one of the most consequential monetary transitions in modern history.

Gold vs. Stocks Performance Since Nixon Killed The Gold Standard

Imagine waking up on August 16, 1971, with $5,000 to invest.

The S&P 500 index was trading at 100 points, while an ounce of gold cost just $43.50.

Had you bought gold, you would have taken home around 115 ounces of bullion. Had you put your money into the S&P 500, you’d have secured a diversified slice of the 500 largest publicly traded U.S. companies.

At first glance, gold appears to have been the winning bet.

Fast forward to April 2025, and those 115 ounces of gold would now be worth roughly $379,500, based on a spot price of $3,330 per ounce.

That’s a total return of about 7,500%—not bad for something you can stash in a vault.

By contrast, the S&P 500 has grown from 100 to 5,282 points over the same period, delivering a price appreciation of approximately 5,182%. Your $5,000 would have grown to just $264,100.

Gold wins. Yet, only on paper.

The Dividend Illusion

Here’s what most investors miss: the S&P 500 index, as quoted daily, reflects only price movements.

It doesn't account for the powerful stream of dividends that companies pay out to shareholders—cash payments that, when reinvested, have a compounding effect on long-term returns.

If you had collected those dividends every year and simply pocketed them in cash without reinvesting, your total would have been modestly higher than the price-only return.

Over 53 years, with an average dividend yield of around 2.81%, you would have accumulated about $7,452 in cash.

Combined with the $264,100 value of your original stock investment, you'd have ended up with roughly $271,552. Better than the price-only figure, but still well behind gold.

The Power Of Reinvestment

Now let's consider the full picture. If you had reinvested every dividend back into the S&P 500 over those 54 years, your $5,000 would have ballooned into an astonishing $1,185,516.

That's not a typo. It's a total return of 23,610%, or 47x your original investment.

The power of compounding, of reinvesting the cash paid out by companies rather than spending it or letting it sit idle, is what transforms long-term equity investing into a wealth-generating engine.

So while gold may have shone brightly during the inflationary storms and monetary turmoil that followed Nixon's speech, it ultimately lagged behind the compounding machine that is the S&P 500, with one important condition: you had to reinvest those dividends.

Investment Type	Strategy	Final Value (Apr 2025)	Total Return
Gold	Hold physical gold	$379,950	+7,500%
S&P 500 (Price Only)	No dividends	$264,100	+5,182%
S&P 500 (Dividends Taken in Cash)	Dividends collected, not reinvested	$271,552	+5,331%
S&P 500 (Total Return)	Dividends reinvested	$1,185,516	+23,610%

Are S&P 500 ETFs Reinvesting Dividends?

Today's investment vehicles tracking the S&P 500—such as the Vanguard S&P 500 ETF (NYSE:VOO) and the SPDR S&P 500 ETF Trust (NYSE:SPY)—do provide investors with exposure to dividends, but they are distributing funds. This means that dividends are paid out in cash and are not automatically reinvested within the ETF.

To replicate the compounding effect seen in historical total return scenarios, investors must manually reinvest those dividends or activate a dividend reinvestment plan (DRIP) through their brokerage account.

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