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Gold remains a popular option for investors seeking diversification and protection against extreme market events, but it is better viewed as insurance for a portfolio than a vehicle for long-term growth. Unlike stocks or bonds, gold produces no income; its value rests on widespread belief in its worth and its limited supply. That makes it a “store of value,” not an income-producing asset.
How to invest in gold
– Physical gold: Buy coins or bars through dealers, the U.S. Mint, or apps that let you buy fractional bars. Some services will store the metal for a fee, or you can take physical possession.
– ETFs and funds: Exchange-traded funds such as SPDR Gold Shares (GLD) provide low-cost exposure to the gold market. Other options include Invesco DB Gold Fund (DGL), Franklin Gold and Precious Metals Fund (FKRCX), and closed-end trusts like Sprott Physical Gold Trust (PHYS), which may allow redemptions for physical metal. Mutual funds focused on mining and precious metals are also available.
– Mining stocks and ETFs: Buy shares of gold miners or funds that track the mining sector, such as VanEck Gold Miners ETF (GDX). Individual miners include firms like Barrick Gold and Equinox Gold.
– Futures and derivatives: Contracts to buy or sell gold at a future date suit sophisticated traders and require careful study before use.
Coins vs. bars
Coins are typically easier to sell and offer instant authenticity, but they carry higher premiums. Bars tend to be more cost-efficient per ounce. For many investors, a blend of coins and bars makes sense. If you lack funds for a full bar, fractional shares or fractional bars via certain platforms are an alternative.
Gold and inflation
Gold is commonly thought to hedge inflation, but the relationship is inconsistent. Historical data show periods when gold rose without rising inflation and other times when the two moved in opposite directions. Studies (for example, by Bloomberg and the World Gold Council) suggest real estate and inflation-protected Treasury securities (TIPS) have been more reliable inflation hedges over recent decades, with gold ranking behind them.
Performance and role in a portfolio
Over long stretches, equities have outperformed gold. For example, a 50-year comparison shows much higher annualized returns for the S&P 500 than for gold. Stocks are generally better for capital appreciation, while gold serves to dampen volatility and act as a safety net during severe market stress. Because physical gold often sells at a premium and storage adds cost, investing via funds or mining stocks is usually simpler and cheaper.
Costs, taxes, and risks
Physical gold often carries a purchase premium and storage or insurance costs. It is also subject to collectible tax treatment in some jurisdictions, which can mean higher capital gains tax rates (up to 28% in the U.S. for collectibles). Other risks include theft, loss, counterfeiting (for example, tungsten cores in fake bars), and the volatility of gold prices. Unlike stocks, gold does not pay dividends to compensate investors for taking on that volatility.
Gold vs. cryptocurrency
Cryptocurrencies, led by Bitcoin, have gained traction as alternative stores of value but are much newer and more volatile than gold. Since their inception, some cryptocurrencies have delivered very high returns, but they lack gold’s long track record. Which is better depends on your objectives and risk tolerance: crypto may suit aggressive investors seeking outsized gains, while gold appeals to those who want a historically established store of value.
How much gold to hold
Many advisers recommend a modest allocation to speculative or alternative assets—typically 5% to 10% of a portfolio. A small allocation to gold can provide ballast during downturns without significantly reducing overall portfolio growth when stocks and bonds perform well.
Conclusion
Treat gold as portfolio insurance rather than a growth asset. It preserves purchasing power in certain scenarios and provides diversification, but it usually underperforms equities over long periods and comes with extra costs and practical risks. If you choose to include gold, do so in limited, strategic amounts and consider using ETFs or trusted custodial services to reduce the hassle and expense of owning physical metal.
