assetbest 
With high inflation on many investors’ minds, gold often comes up as a potential hedge. This piece explains how gold investing works, the different ways to own it, whether it protects against inflation, and the main pros and cons to consider.
What gold is and why people buy it
Gold doesn’t produce income through interest or dividends. Its value rests on widespread belief that it’s valuable, plus its limited supply. That status as a “store of value” is why people buy gold even though it offers no cash flow.
A key turning point was 1971, when the U.S. ended the dollar’s convertibility to gold. That move removed gold’s direct role in controlling inflation. Since then, gold has had periods of rapid gains and long stretches of flat performance. While it rarely beats stocks over long periods, gold can help diversify a portfolio and act as protection during extreme events.
Ways to invest in gold
– Physical gold: bars or coins bought from dealers or through services that store it for you. Some apps let you buy fractional bars or take possession of the metal if you prefer.
– Gold ETFs and mutual funds: funds such as SPDR Gold Shares (GLD) and others offer easy market exposure without the need for storage.
– Physical-gold trusts: some closed-end trusts allow redemptions for actual metal.
– Gold-mining stocks and ETFs: buying miner shares or a miners ETF (for example, VanEck Gold Miners ETF) gives exposure to the industry, which can amplify gold price moves.
– Futures and other derivatives: these are complex and better suited to experienced investors.
Coins vs. bars
Neither is strictly better. Coins are often easier to sell and provide clear authenticity; bars are usually cheaper per ounce. If you can’t afford a whole bar, fractional ownership through platforms is an option. A mix of coins and bars can balance liquidity and cost.
Does gold hedge inflation?
Gold’s relationship with inflation is inconsistent. There are times when gold rose with inflation and other times when it moved independently of—or even opposite to—inflation. Studies comparing assets have found that real estate and Treasury Inflation-Protected Securities (TIPS) can be stronger and more consistent inflation hedges than gold. So gold may help in some scenarios, but it isn’t a guaranteed inflation shield.
Performance and role in a portfolio
Historically, stocks have outperformed gold over long stretches. For example, over multi-decade periods the S&P 500 has delivered higher annualized returns than gold. Gold’s strength is as a safety net and diversifier rather than a growth driver. It can reduce portfolio volatility when held in modest amounts, but it won’t generate the long-term returns equities typically provide.
Costs and drawbacks
– No yield: gold doesn’t pay dividends or interest.
– Premiums and storage: physical gold typically sells above spot price and may incur storage or insurance fees.
– Taxes: in some jurisdictions, gains on physical gold are taxed unfavorably compared with stocks.
– Volatility and poor risk/reward: gold can be volatile but generally delivers lower returns than similarly risky assets.
– Security risks: theft, loss, and counterfeits are real concerns, though reliable dealers and secure storage mitigate them.
How much gold to hold
A small allocation—often suggested in the 5–10% range—for alternative or speculative assets is common. This keeps gold as a buffer without giving it an outsized role in your growth strategy.
Gold vs. cryptocurrency
Cryptocurrencies like Bitcoin are newer and far more volatile. Bitcoin has shown massive returns since inception, but it lacks gold’s long history. Which is “better” depends on your goals and risk tolerance: crypto may appeal to high-risk investors chasing large gains, while gold appeals to those wanting a time-tested store of value.
Practical tips
– Decide your goal: safety and diversification, or speculative gain.
– If you want short-term exposure, ETFs or futures are easier to trade than building a physical collection.
– If you want physical metal for worst-case scenarios, consider reputable storage or insured custody and be mindful of premiums and taxes.
– Combine approaches if desired: a small physical holding plus ETF and miner exposure can cover different needs.
Bottom line
Think of gold as portfolio insurance rather than a main growth asset. It can provide stability and diversification, but it comes with costs and tends to underperform equities over the long run. Keep any gold allocation limited and purposeful while building most wealth through productive assets like stocks and real estate.
