Though in the shorter term it can be just as volatile as stocks, over the very long term, gold has held its value remarkably well. You may also opt to buy gold you can wear—or that someone once wore but has been damaged—in the form of gold jewelry. Investing in gold jewelry, however, carries many risks that investing in pure gold doesn’t. When most people think about investing in gold, bullion is what they think of—big, shiny gold bars locked away in a vault. The earlier part of the 21st century was gold’s time to shine. From 2000 through 2023, gold generated an annualized return of 8.7%.
Is it a good time to invest in gold?
While gold can help add balance and security for some investors, like most investments, there are also risks to watch out for. Gold certificates represent ownership of a specific amount of gold stored by the issuer, usually a bank. They are essentially paper documents that certify the holder’s claim to a certain quantity of gold. This allows you to benefit from gold’s price moves without the need to manage the physical asset.
Problems With Bullion
Gold’s enduring value and its role as a safe haven asset make it a compelling investment, particularly in volatile or unpredictable markets. Gold coin prices may not entirely align with their gold content, though. A one-ounce American Gold Eagle coin, for example, retails for just over $2,000 in mid-September 2020.
- Gold prices tend to increase when the U.S. dollar is underperforming or during times of economic and political uncertainty.
- As prices for various goods and services rise, the purchasing power of the U.S. dollar (and other currencies) tends to drop.
- So another good rule of thumb is to buy gold when things have calmed, at least temporarily — the eye of the storm, so to speak.
- Alternatives to invest in gold include buying shares of gold mining companies or gold exchange-traded funds (ETFs).
- It is often called the “crisis commodity” because people flee to its relative safety when world tensions rise.
Gold Funds Beat Physical Gold
On an inflation-adjusted basis, gold’s annualized return comes to 2.3%. The yellow metal did much better than bonds, but once again trailed stocks by a wide margin. For example, gold prices vaulted past $2,000 an ounce in early March 2022 in response to the Russian invasion of Ukraine. More seasoned investors might consider an option on a gold futures contract. Like any financial option, these represent the right — but not the obligation — to buy or sell an asset (gold in this case) at a specific price during a specified window of time. You can buy an option to bet on whether gold’s going up or going down, and if the market moves the opposite way, all you’ve lost is the small amount you’ve paid for the option.
At the same time, the production of new gold from mines has been declining since 2000. One alternative to a direct purchase of gold bullion is a gold-based exchange-traded fund (ETF). Each share of this specialized security represents a fixed amount of gold, such as one-tenth of an ounce. Actually, gold bullion is any form of pure, or nearly pure, gold that has been certified for its weight and purity. This includes coins, bars, and other forms of gold of any size. A serial number is commonly attached to gold bars, for security purposes.
Unlike futures contracts, which are agreements for transactions at a future date, the spot price pertains specifically to immediate sales. Over the very long term, gold has a significantly lower average annual return than stocks. From 1971 to 2024, the stock market delivered average annual returns of 10.7%. Gold delivered an average annual return of 7.9% over the same period. Gold, meanwhile, generated an annualized return of 5% before inflation.
Some funds invest in the indexes of mining companies, and others are tied directly to gold prices. Investing in gold versus bitcoin comes down to your risk tolerance, goals, and preferences about asset tangibility and stability. Gold is suited for those seeking a relatively stable investment to preserve wealth and hedge against economic instability. Diversification across both could mitigate risks while capitalizing on potential gains from both. If you buy non-standardized jewelry, antique coins or other items, it’s harder to evaluate how much gold is in the item and what it is worth as an investment. At the same time, jewelers charge a premium for creating gold jewelry, so less of your money goes toward the pure investment.
Like any financial asset, gold securities have both benefits and drawbacks. Stashing large amounts of gold in your home leaves you vulnerable to theft, so insure it, and locate an off-site storage location where you can rest assured it’s protected. In fact, if you want to hold gold in an IRA account, the IRS mandates that gold can be stored with a metals-specialist custodian through a gold IRA. For many people, the whole point of owning gold is to own the physical stuff. It’s the actual metal that has most of the inherent investment advantages. Nonetheless, jewelry ownership provides an enjoyable way to own gold, even if it is not the most profitable from an investment standpoint.
In the long run, gold has a significantly lower average annual return than stocks. From 1971 to 2024, the stock market delivered average annual returns of 10.70%. Gold delivered an average annual return of 7.98% over the same period. More investors are buying gold via ETFs, which allows for a managed portfolio of easily traded assets.
Throughout history, few investments have rivaled gold in popularity as a hedge against almost any kind of trouble, from inflation, to economic upheaval or currency fluctuations, to war. David Rodeck specializes in making insurance, investing, and financial planning understandable for readers. He has written for publications like AARP and Forbes Advisor, as well as major corporations like Fidelity and Prudential.
It will often lose money during these periods as investors sell gold to put their money in the stock market and other growth assets. Gold offers unique advantages compared to traditional market assets like stocks and bonds. If you are considering investing in gold, it is important to understand how it stacks up first.
Many online brokerages allow for trading in these securities, but they may require account holders to sign additional forms acknowledging the risk of investing in these derivatives. Humans have used gold as an investment vehicle and to display their wealth for thousands of years. Although we have many other investment options today—such as stocks, bonds, cryptocurrencies and more—gold remains popular. The U.S. economy has been in flux for several years now, and inflation has affected all households. Investors can use gold as an inflationary hedge in their portfolios.
Before changing up your investment portfolio, consider meeting with a financial advisor first. They can give you an unbiased opinion of gold as an investment versus the sales pitches you would receive from dealers selling precious metals. Together, you can determine what role, if any, gold should play in your portfolio. Gold stocks, ETFs and mutual funds are much easier to buy and sell than physical gold.
Your regular brokerage or financial services firm probably doesn’t deal in gold. Bullion is typically only sold at banks and gold dealers, while minted coins can be purchased at coin dealers, brokerage firms, and precious metal dealers as well. Wherever possible, try to purchase from a bank first, as they often offer lower markups than dealers.
The reasons for gold’s importance in the modern economy center on the fact that it has successfully preserved wealth throughout thousands of generations. The same, however, can’t be said about paper-denominated currencies. Central banks and multilateral financial institutions hold almost one-fifth of the world’s supply of above-ground gold. In addition, several central banks have added to their gold reserves lately, reflecting concerns about the long-term global economy. Even though gold no longer backs the U.S. dollar (or other worldwide currencies, for that matter), it still carries importance in today’s society.
Because the metal is often used to hedge against inflation, the pace of inflation—and market expectations for future inflation levels—can have an impact on gold prices. In addition, deteriorating economic conditions may bolster gold prices because the metal is seen as a relatively safe investment in difficult times. Some are passively managed index funds that track industry trends or the price of bullion using futures or options. You can buy gold coins, jewelry and other collectibles in many ways. But as a pure investment, it is best to stick to standardized options with a predetermined amount of gold content. Gold bars are popular because investment-grade bars must be at least 99.5% gold.
As attractive as coins and bullion may be, funds are the easiest way for retail investors to get exposure to gold. That’s what happened from the mid-1970s through the early ’80s, when inflation crept from 4.8% in 1976 to 13.3% in 1979 and 12.4% in 1980, before beginning a long descent. The price of gold leapt from less than $150 an ounce to more than $800 (and then collapsed to $400 by 1981). Benchmark Treasury notes came in last during this period, with a 3.1% annualized return, or 0.5% in inflation-adjusted terms. Note that the price of gold actually dropped about 27% between 1989 and 1999. Gold often loses value in prosperous times, as the 1990s generally were.
Gold can play an important role in your financial plan, but it should not be the bulk of your investment portfolio. Experts recommend keeping between 3% and 6% of your investment portfolio in gold, depending on your risk profile. Gold can soar in value during hard times, when investors are fearful and uncertain and seek safety. Just look at the diverging paths that stocks and gold took in 2020 amid the outbreak of COVID-19. The 10-year Treasury note delivered an annualized return of 4.2% over the same span. Adjusted for inflation, 10-year notes delivered an annualized return of 1.5%.