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With recent high inflation, many investors are asking whether gold still makes a good investment. This article explains the main ways to invest in gold—physical bars and coins, ETFs, mining stocks and futures—and outlines gold’s strengths and drawbacks so you can decide how it might fit in your portfolio.
Bottom line: Gold works best as portfolio insurance and a diversification tool, not as a growth asset. Over long periods it has tended to underperform stocks, so it’s usually most appropriate for conservative investors seeking stability or a store of value rather than capital appreciation.
What gold is and why people buy it
Gold doesn’t produce income like stocks or bonds. Its value rests on widespread agreement that it’s valuable and on a limited supply, which is why many treat it as a “store of value.” That consensus among individuals, institutions and governments, plus scarcity, lets gold appreciate even though it pays no yield.
Gold’s role changed in 1971, when the U.S. stopped converting dollars to gold and ended the gold standard. Prices rose through the 1970s and early 1980s, then spent long stretches trading flat. Gold can help diversify a portfolio, but it’s not a perfect hedge and usually trails equities in long-term returns.
How to invest in gold
– Physical gold: bars and coins bought from dealers or the U.S. Mint, or through services that let you buy and have the metal stored for a fee. Some apps let you buy fractional bars.
– ETFs and funds: SPDR Gold Shares (GLD) is a common low-cost option. Other funds include Invesco DB Gold Fund (DGL), Franklin Gold and Precious Metals (FKRCX), the Sprott Physical Gold Trust (PHYS, which allows redemption for physical gold) and Fidelity Select Gold Portfolio (FSAGX).
– Mining stocks and ETFs: You can buy shares in miners like Barrick Gold (GOLD) or Equinox Gold (EQX), or an ETF such as VanEck Gold Miners ETF (GDX) that tracks a miners index.
– Futures and derivatives: These are complex and best left to experienced investors.
Coins versus bars
Neither is always better. Coins are often easier to authenticate and sell; bars tend to be cheaper per ounce. Many investors hold a mix. If you can’t afford a full bar, fractional options are available through some platforms.
Is gold an inflation hedge?
The relationship between gold and inflation is inconsistent. At times gold has risen with inflation, at other times it has moved independently or even inversely. Studies (including work through 2020) show real estate and 10-year TIPS have historically been more reliable inflation hedges than gold, which often ranks behind these assets.
Returns, volatility and taxes
Historically, stocks have outpaced gold. For example, over a long multi-decade period the S&P 500 has returned considerably more annually (with dividends reinvested) than gold. Physical gold typically sells at a premium and brings added costs: storage, insurance, dealer markups and potential certification fees. U.S. tax treatment also differs—physical precious metals can be taxed as collectibles, subject to higher rates than long-term capital gains on stocks.
Pros and cons
Pros:
– Acts as a long-standing store of value and portfolio diversifier
– Limited supply gives it a natural price floor
– Useful as insurance against severe market or currency stress
Cons:
– No income stream and a low long-term expected real return
– Volatile and prone to long flat periods
– Premiums, storage and insurance add costs
– Tax treatment can be unfavorable
– Susceptible to counterfeits and theft without proper safeguards
Gold versus cryptocurrency
Cryptocurrencies like Bitcoin have offered much higher returns since 2009 but come with far greater uncertainty and a shorter track record. If you seek high upside and can tolerate big swings, crypto may fit; if you want a tried-and-true store of value, gold is more conservative.
How much gold should you hold?
Many advisors suggest a small allocation—often 5–10%—to speculative or alternative assets, including gold. A modest position can provide ballast during market stress while keeping the bulk of your capital invested in higher-growth assets like stocks and real estate.
Bottom line
Use gold as insurance, not as the engine of your portfolio’s growth. A limited, strategic allocation can smooth volatility and protect wealth in certain scenarios, but most long-term capital appreciation will come from productive assets such as stocks and real estate. Keep your gold allocation small, understand the costs and risks, and choose the form of gold that matches your goals—physical metal for worst-case preservation, ETFs for easy diversification, and mining stocks for leverage to gold’s price.
