Is Gold a Good Investment?

Gold doesn’t pay dividends, earn interest, or generate revenue, which might lead you to ask: Is gold a good investment? While you might not receive immediate income from gold, it has historically risen in value and has been a longtime haven for investors. The benefits and risks to you, the investor, can depend on what’s happening in the economy.

Relationship Between the Price of Gold and the Economy

Three major economic factors can drive the price of gold: inflation (rising prices), interest rates and currency shifts. With high inflation or a weakening dollar, investors flock to gold because of its store of value. 

Historically, gold has increased in value over time. Since gold reserves are finite, there is typically high demand and limited supply, resulting in the price of gold continuing to rise.

Similarly, central banks buy gold bullion to diversify their reserves and strengthen their positions. The banks’ policies can impact investor behavior by influencing the larger economy. If central banks print money to buy gold, they can create too much fiat currency — currency not backed by a commodity — potentially leading to inflation.

Benefits of Investing in Gold

Investing in gold can diversify your investment portfolio. Adding gold to your investment mix could reduce your overall risks because of gold’s low correlation to stocks and bonds. When stocks are down, gold prices tend to rise.

In the past, gold has held its value and appreciated. Over time, gold prices will rise and fall, but you can see gains over 10, 20 or 30 years if you buy and hold. For example, the price of gold has risen from $35 an ounce to more than $2,100 per ounce since 1971. 

Keep an eye on inflation, interest rates, currency values and conflicts in gold mining regions. Staying apprised of such developments can guide you in your decision to buy and sell.

Risks

You may witness short-term price volatility, the risk of disinflation — which can drive down the price of gold — and rising political tensions that could impact the monetary policies of central banks. Depending on how you invest in gold, your costs can erode your returns. 

You must pay a premium and transaction fees on gold bars and coins. With physical gold, you also have to store it, which means storage fees and insurance costs that could outpace your returns.

When to Invest

Seek a reputable dealer, inspect the gold’s purity and weight, verify its authenticity and check the spot price against the premium. You also can compare several premiums.

One analysis says gold prices rise through the year and are highest during the third and fourth quarters. Consider buying gold in January, March, April, June and July. Also, remember that financial professionals advise holding 10% or less of your portfolio in gold to diversify your investments.

How to Invest

You have several choices of how to invest in gold. You can invest in gold bars and coins, gold exchange-traded funds (ETFs), gold mining stocks or gold individual retirement accounts (IRAs).

Gold Bars and Coins

Investing in gold bars and coins means owning a tangible asset. You might find bars more attractive for their lower premiums than coins, higher gold content and wide range of sizes. But you might feel greater security from owning coins issued by national governments.

Coins are easier to store, cheaper to insure and can be more liquid than bars. If you sell gold, you should look for a price near the spot melt price, so your offer should be about 96—99% of the spot price.

You may also experience tax benefits by buying gold coins. You can add them to a gold IRA, allowing any appreciation to be tax-deferred. Alternatively, you might add them to a gold Roth IRA, pay the upfront taxes and let them appreciate tax-free. Some states provide a tax exemption for investing in gold coins, and gold is a universal currency.

You can purchase gold coins from dealers, online, at pawnshops or from people you trust. Government mints can be a viable option as well.

Gold ETFs

A gold ETF holds bullion or a mix of bullion and futures. It also can hold other gold investments, such as gold mining stocks. The value of the gold ETF usually matches the underlying asset, so your ETF’s value increases when gold increases. The investment also can be more liquid and cost-effective.

Gold Mining Stocks

Buying stock in gold mining is another way to invest in gold. You can purchase the stock of a gold mining company or buy shares of gold royalty stock from companies that fund mining in exchange for a percentage of the revenue. 

Alternatively, you can purchase shares of a gold streaming company that provides the upfront cash for a mining company. In exchange, they obtain the right to buy gold from the mine at a reduced price.

Gold royalty and streaming company stocks lower your risks. You aren’t an owner with shares of a gold royalty company. With gold streaming, you own a partial stake in the mining company with none of the operational risks.

Gold IRAs

Consider a gold IRA if you’re investing for retirement. This IRA can hold gold, silver, platinum, or palladium. While you purchase physical metals, a custodian must handle and store them.

The tax implications are the same as with regular Roth and traditional IRAs. The traditional gold IRA comes with a tax deduction, and your gold appreciates tax-deferred. You must pay taxes on any gain at distribution. The gold Roth IRA allows your metals to appreciate tax-free, and distributions are tax-free.

Where to Invest  

Once you’ve researched when and how you want to invest, you can compare these dealers for your gold investment.

Should You Invest in Gold?

Is gold a good investment? To find the answer, you must use your financial goals, risk tolerance and investment horizon to guide you. 

But the economic environment in 2024 is right for investing in gold. The metal has demonstrated historical resilience during economic turmoil, and the price typically rises during inflation. While inflation has cooled, it sits at 3.3%, well above the Federal Reserve’s target of 2%.

Also, gold’s properties — good conductivity and corrosion resistance — make it an important metal in gadgets and medical devices. Gold is also used in aerospace, solar cells, nanotechnology and other sectors. Industrial demand is expected to continue gold’s usefulness.

So is gold a good investment? It has benefits and risks. The real question is whether investing in gold fits into your investment strategy. Consider talking to a financial professional about fitting gold investing into your financial plan.

Frequently Asked Questions