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Gold is beating stocks this year—Here's why

Gold started the week on a bright note, settling almost 1.5 percent higher on Monday.

What's more impressive is that with Monday's rally, gold is now up 2.5 percent this year, outpacing the S&P 500's mild 1 percent gain. The last time gold beat the S&P's price appreciation in a full year was in 2011, when gold rose 16 percent while stocks were flat.

George Gero, a precious metals analyst with RBC, credits Friday's especially weak jobs number for gold's rally.

The latest nonfarm payrolls report showed that only 126,000 jobs were created in March, far below the 248,000 expected. Prior reports were also revised lower That caused some investors to push back their expectations of when the Fed will raise rates.

A rate rise is seen as hurting gold, given that it will most likely mean a stronger dollar and higher interest rates. A more valuable dollar means it takes fewer dollars to buy every ounce of gold, and also makes gold more expensive overseas, since gold is priced in dollars. Meanwhile, rising rates make holding gold less attractive than holding other assets, given that gold doesn't produce a yield.

Read MoreHere's why it could get way worse for gold

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As expectations about the coming hike get pushed back, then gold bulls breathe a sigh of relief.

"Now, with so many bears in the woods, the fact that the Fed seems to be kicking the can down to the road to maybe September instead of June is helping gold tremendously," Gero said.

While stocks also cheer an easy-money Fed, equity investors, unlike gold investors, also have to worry about earnings. Bad economic news indicates bad things for earnings, which would explain why the market opened lower on Monday, albeit before rebounding nicely.

Meanwhile, Todd Gordon of TradingAnalysis.com says that gold broke an important resistance level on Monday, as the dollar slips.

"I think this is a story of dollar weakness," Gordon said. "So actually, I just went long gold today."

Gordon's "minimum upside target" on gold is $1,256, more than 3 percent above current levels.


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