Gold Is No Safe Investment

Gold’s properties as an asset class make it an excellent tool for reducing overall portfolio risk and potentially enhancing long-term returns. Although inflation soared in 2022, gold prices declined for much of that year, driven in part by the strength of the U.S. dollar against other currencies. Then, as inflation began to ebb in 2023 and then drop in 2024, gold continued its rise. This decoupling could suggest investors are viewing gold through a new lens.

They point to strong signals that suggest gold prices could climb even higher. Still, gold’s recent performance is noteworthy because it has broken from its usual correlations. Typically, gold prices fall when real interest rates rise, but this relationship has seemed weak as U.S. federal interest rates flattened and then is buying gold a good investment started to fall in 2024.

But while that downturn may seem like a warning sign to avoid gold investing for now and focus on less volatile assets instead, this type of price volatility can actually create strategic opportunities in the gold market. This makes the precious metal a potential hedge against volatile economic conditions. Investors tend to add gold assets to their portfolios when they anticipate hard economic times that may devalue the dollar and other assets. Because of this, gold is largely considered a safe-haven asset that may store value regardless of the state of the economy.

How Investing in Gold Could Add a New Dimension to Your Portfolio

Waiting for prices to drop might backfire as « that contains a lot of risk in an upward trending market … you may never get the chance to buy it, » Qureshi says. This aligns with Charnet’s view that gold investments should be seen through a lens of 10 years or more. Unlike stocks or digital assets, gold bars and coins provide a sense of security that comes from owning something you can hold in your hand. This quality makes gold particularly appealing during periods of financial instability. Gold bars and coins are also highly liquid, meaning they can be easily bought or sold when needed. This flexibility, combined with their durability and universal appeal, ensures that physical gold remains a valuable asset regardless of market conditions.

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Gold can also be a safe-haven asset when the economy turns south and the prices of stocks and bonds decline. However, it’s essential to approach gold investments cautiously and thoroughly research any claims made by those promoting them. Investors should be wary of high-pressure sales tactics and promises of guaranteed returns, as these are red flags for questionable investment schemes. However, experienced investors know gold to be a prudent way to diversify their portfolios.

Different Ways To Invest in Gold

As such, gold has typically had a low or negative correlation with other major asset classes, such as stocks and bonds. This means that when other assets are underperforming—though, again, 2023 to 2024 seems to counter this—gold may hold its value or even appreciate, helping to smooth out portfolio returns over time. Gold has maintained its value over time, unlike paper currency, coins, and many other assets. Behind real estate, it’s likely the second oldest asset still traded, with many seeing it as a way to pass on and preserve their wealth from one generation to the next. It seems to be the metal we fall back on when other forms of currency don’t work, which means it always has some value as insurance against tough times. It’s also an often-used material in the technology, dentistry, and other industries.

Consider starting with smaller purchases and adding to your position regularly over time. This strategy, known as dollar-cost averaging, helps reduce the impact of price swings while building your gold holdings responsibly. « It’s best to hold a small position in gold for the ‘what-if’ scenario, » advises Mark Charnet, founder and CEO of American Prosperity Group. He recommends making systematic investments you can maintain through good and bad market cycles. « It caused the 2020 market crash. This drove gold’s price to an all-time high of almost $2,100 per ounce. »

Gold prices can be volatile in the short term, but the metal has maintained its value over the long term. In general, movements in the price of gold depend on supply, demand, and investor behavior. 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. Gold is historically a safe and stable investment that can protect you in times of economic and geopolitical uncertainty.

During times of higher inflation

However, there are better and worse times to invest in gold, and your decision should also be based on your risk tolerance and financial goals. The decision to invest in gold and the timing of such investments should be based on a combination of macroeconomic indicators, market trends, and your trading goals. Investing in gold comes with risks and costs that should be weighed carefully. Below is a chart of the year-to-year percentage change in the price of gold juxtaposed with the returns of the S&P 500 index, an often-used benchmark of the 500 largest companies in the U.S.

From the start of the current bull market, which began in mid-October 2022, the S&P 500 gained over 60% by mid-October 2024. Gold is also seen as a hedge against inflation, although the extent to which the two reliably inversely map each other is debatable. Because any company goes through growth and expansion cycles when it takes on more debt and has a lower cash-on-hand balance, it’s imperative to analyze the performance over the long term. The reasons for gold’s importance in the modern economy center on the fact that it has successfully preserved wealth throughout thousands of generations.

Below are the results if you had invested $100 in gold and the S&P 500 in 1971, the year the U.S. went off the gold standard. Sharon Wu, a senior writer with over a decade of experience, specializes in consumer-focused content covering home and finance topics such as insurance, investments, credit, debt, mortgages and home security. For more on these funds, check out Investopedia’s list of high-performing gold ETFs. U.S. gold reserves are estimated at 3,000 tons, with production at about 170 tons.

1. Throughout history, gold and other precious metals have maintained their status as fixtures in the ever-evolving global financial markets.
2. « History has shown that during economic slowdowns, from the Great Depression to the COVID-19 pandemic, gold appreciates in value, » says financial analyst James Jason of Mitrade.
3. That’s because the precious metal is seen as a relatively price-stable, safe-haven asset when the cost of consumer goods and services rise, and purchasing power subsequently falls.
4. With gold IRAs, you’re able to include assets such as precious metals that you can’t hold in traditional or Roth IRAs.
5. Gold is historically a safe and stable investment that can protect you in times of economic and geopolitical uncertainty.
6. While many investors think of gold primarily as a hedge against inflation, Conners argues its appeal is broader.

Similarly, gold and the U.S. dollar have strengthened in tandem, defying their usual inverse relationship. Every day you keep an investment, you’re making the decision to keep your money tied up in it regardless of its current market value. That means you need to invest in things that will make you more money over time—like real estate and mutual funds. Since these fees are charged annually, over the long term they can erode your potential gains. Storage and insurance fees can range from 0.5% to 1% of the value of your precious metals each year. However, these fees are typically less than fees charged by asset managers.

1. The only reason the dollar is worth something is because it’s a worldwide accepted form of trade.
2. As such, gold has typically had a low or negative correlation with other major asset classes, such as stocks and bonds.
3. If you’re a novice investor, using complex instruments such as futures and swaps also exposes you to a bigger potential risk of loss.
4. Given the rapid and steep rise in gold prices in recent years, gold isn’t just drawing in those looking for a safe way to diversify their holdings.
5. All this perhaps matters little to investors so much as its actual price moves.

The value of your investments can go down as well as up and you may get back less than you put in. President Richard Nixon ended the direct convertibility of the U.S. dollar to gold, effectively ending the gold standard era. The Great Depression put significant pressure on this system as countries facing destitute populations looked to stimulate their economies through monetary expansion.