Is Gold a Good Investment for Your Portfolio?

Gold often increases in value during periods of crisis or elevated inflation, making it appealing to investors looking for assets that can hold up in tough economic conditions. Unlike cash and many other asset classes, which tend to lose value over time due to inflation, gold has historically served as a hedge against rising prices. It also offers greater liquidity than assets like real estate or retirement accounts, allowing investors to more easily convert it into cash. However, investing in gold is not as straightforward as it may initially appear.

Consider working with a financial advisor if you’re interested in adding gold to your portfolio.

Reasons Why Gold May Be a Good Investment for Your Portfolio

There are several compelling reasons to consider investing in gold, regardless of the current economic climate. Gold has remained a popular investment for thousands of years due to its unique properties and enduring appeal. Its stability, scarcity and historical value make it a distinctive asset in any portfolio.

The following are three reasons why gold could be a good investment for your portfolio.

1. Gold Can Preserve Wealth

One of gold’s best features is that it preserves wealth. Gold has been a valuable resource for thousands of years, and multiple civilizations and empires have come and gone. Some of those people had their own currencies which today only have historical value. Gold, on the other hand, still has monetary value and can easily be bought and sold.

2. Gold Can (Sometimes) Protect Against Inflation

Gold is a popular investment among those who lose confidence in governments and their respective currencies. But it can also be a good store of value during periods of inflation. There are many reasons this can occur. For instance, consumers may not want to spend their money on goods when prices are rising rapidly, so they decide to purchase gold instead until inflation rates stabilize.

Another reason gold often performs well during inflation is due to the fact that gold is priced in U.S. dollars. Thus, when there is inflation in the U.S., the dollar weakens, making it cheaper for those with foreign currency to buy gold. This may cause the price of gold to increase. Hence, gold becomes a better way to set money aside than cash.

The World Gold Council noted in July 2021 that gold has a “surprisingly poor” correlation to the consumer price index. Since the 1980s, there has only been one time when gold has posted strong returns amid surging inflation (4% or more): a short period between 2007 and 2008 during the financial crisis.

3. Gold Helps You Diversify

Another benefit of gold as an investment is diversification. Reducing risk is key to a successful long-term investing strategy, and gold is not positively correlated with stocks, bonds or real estate. While it’s possible to build a diverse, relatively low-risk portfolio with just these three assets, adding some gold can round out your portfolio and reduce risk even further. Regardless of how the economy is doing, it’s always a good idea to reduce your risk to an acceptable level.

5 Ways to Invest in Gold

There are many different ways to buy gold. For starters, you aren’t limited to buying physical gold alone. The number of ways to invest in gold is similar to the myriad ways to invest in stocks.

1. Gold Bullion

Gold bullion is one of the most traditional and tangible ways to invest in gold. It typically comes in the form of bars, ingots or coins that have been refined for purity and weight. Investors often buy bullion as a long-term store of value, especially during times of economic uncertainty.

You can purchase gold bullion online through licensed dealers, local coin shops or even some banks. However, because gold is valuable and sometimes targeted by counterfeiters, it’s crucial to buy only from reputable, certified dealers who provide authentication and purity certificates. Keep in mind that buying physical gold also requires secure storage — whether in a home safe, a safety deposit box or a professional vaulting service — and possibly insurance, all of which can add to the overall cost of ownership.

2. Gold Stocks

Investing in gold stocks offers a different kind of exposure to the gold market. Instead of owning the metal itself, you’re buying shares in companies that mine or produce gold. These stocks can provide attractive upside, especially if gold prices rise or the company discovers new reserves. Some gold mining companies also pay dividends, offering a stream of income on top of potential capital gains.

However, individual gold stocks can be volatile, as they’re influenced not just by the price of gold, but also by company-specific factors such as management decisions, operational costs and geopolitical risk in the regions where they operate. As with any stock investment, thorough research into a company’s financial health, production capacity and competitive positioning is essential before investing.

3. Gold Mutual Funds and ETFs

Gold mutual funds and exchange-traded funds (ETFs) are excellent options for investors looking for convenience and diversification without the need to physically hold gold. These funds typically fall into two categories. The first includes ETFs like GLD and IAU, which track the price of gold itself, providing direct exposure to market fluctuations. The second type includes funds such as GOEX, which invest in a basket of gold mining stocks, offering diversification across multiple companies and geographies.

Many gold mutual funds and ETFs offer lower expense ratios compared to actively managed portfolios and can be bought and sold easily through a brokerage account. Some even pay dividends, adding a layer of income potential to your gold investment. Overall, gold funds and ETFs are a practical way to gain exposure to gold with lower risk and less hassle than physical ownership.

4. Gold Futures

Gold futures are contracts that allow investors to buy or sell gold at a predetermined price at a future date. This method is popular among traders who want to speculate on short-term price movements without actually owning physical gold. Because futures contracts are leveraged, they allow investors to control large amounts of gold with a relatively small upfront investment. However, this also makes them highly volatile and risky. Price swings can lead to significant gains, or losses, very quickly.

Futures trading is best suited for experienced investors or professionals who understand market trends, margin requirements and contract terms. Additionally, futures are typically traded on commodities exchanges like the COMEX, which may require specialized brokerage accounts. If you’re new to gold investing, this method should be approached with caution. It’s might also be wise to avoid it altogether unless you’ve had extensive training or guidance.

5. Gold IRAs

A gold IRA, or precious metals IRA, is a self-directed individual retirement account that allows you to hold physical gold as well as other approved precious metals within a tax-advantaged retirement plan. Unlike traditional IRAs, which are typically limited to stocks, bonds and mutual funds, a gold IRA gives you the ability to diversify your retirement portfolio with tangible assets like gold coins or bars that meet IRS purity standards (generally 99.5% pure or higher).

To open a gold IRA, you’ll need to work with a custodian that specializes in self-directed IRAs, as well as a dealer to purchase the gold and a secure, IRS-approved depository to store it. This adds more steps and fees than a traditional IRA. But it allows you to hold a physical asset that historically retains value during periods of inflation and economic instability. Gold IRAs can be funded by rolling over an existing retirement account, such as a 401(k) or traditional IRA, into the new account.

Keep in mind that because you’re dealing with physical assets, gold IRAs involve additional costs, such as storage fees, insurance and custodian maintenance fees. Additionally, early withdrawals are subject to the same penalties as traditional IRAs. Despite these considerations, Gold IRAs appeal to investors looking to hedge against market volatility and preserve wealth in retirement.

The Potential Downside to Investing in Gold

There’s plenty to like about gold, but it isn’t perfect by any means. As mentioned in the previous section, gold’s performance isn’t positively correlated with some of the most common forms of investment, which allows you to reduce your overall risk. But this is not to say that gold always increases in value.

One look at a 100-year historical price chart for gold quickly makes this apparent. For instance, the price was nearly $550 in 1915. But in 1970, the price dropped to under $270. Keep in mind that these prices are inflation-adjusted. The price of gold never again went quite as low as it did in 1970. However, it shot up to nearly $850 in 1980, and by 2001, it was below $450. It’s also worth noting that over the past 100 years, the Dow Jones Industrial Average has seen growth more than six times greater than gold.

You can continue looking at these peaks and valleys, but it helps to understand just how much the price of gold can fluctuate, especially if you are thinking about investing. Even today, the price is not as high as it was in 1980, when adjusting for inflation. As of April 2025, gold is trading around $3,100 per ounce. Adjusting its 1980 price for inflation, that would be $3,300 in today’s dollars.

Bottom Line

Gold offers many unique advantages for investors, such as its ability to preserve wealth and the fact that its performance is not tied to the performance of other asset classes like stocks and real estate. Geopolitical and monetary crises also enhance the appeal of gold. It’s also highly liquid compared to other commodities, and can be a good way to round out your portfolio. But gold is not without its own set of risks, including its price volatility.

Tips on Investing

Knowing if investing in gold makes sense for you and, if so, how exactly to go about that can be confusing. That’s where a financial advisor can offer valuable insight and guidance. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors who serve your area. You can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Never invest in any asset without fully understanding its risk vs. return relationship. Investments that seem good initially can turn out to be too risky to be worthwhile.
Remember not to make investment decisions based solely on what is happening today. Using a long-term investing strategy will help you build a portfolio that can sustain itself in the long run.