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With inflation rising, many investors wonder whether gold belongs in their portfolios. Gold investing can mean buying physical bars or coins, owning shares of gold ETFs or mutual funds, buying stock in mining companies, or trading futures. Unlike stocks or bonds, gold produces no income; its value rests on widespread belief that it’s a reliable store of value and on its limited supply.
Gold’s role shifted after 1971, when the U.S. ended the dollar’s convertibility into gold and effectively abandoned the gold standard. Since then gold has sometimes surged and at other times traded flat for long stretches. It has not been a perfect inflation hedge and typically delivers lower long-term returns than equities, yet it can still add diversification and downside protection to a portfolio.
How to own gold
– Physical gold: bars and coins can be bought from dealers, the mint, or through services that store metal for you. Physical ownership offers tangible security and liquidity in some situations but usually incurs premiums, storage fees, and risks like theft or counterfeiting.
– ETFs and funds: ETFs such as SPDR Gold Shares (GLD) provide lower-cost, liquid exposure to the metal without the hassles of storage. Some closed-end trusts allow redemptions for physical gold.
– Mining stocks and funds: Buying mining companies or a miners’ ETF offers leverage to gold’s price but adds company-specific and operational risk.
– Futures and derivatives: These tools suit experienced investors and require understanding margin and delivery rules.
Coins versus bars
Coins tend to be more liquid and can provide easier verification of authenticity, while bars usually carry lower per-ounce premiums. For many investors, a mix of both makes sense; fractional bar purchases through apps are an option when cash is limited.
Does gold hedge inflation?
Historical data show a mixed relationship between gold prices and inflation. Gold has climbed during some inflationary periods, but there are also long stretches when the metal rises while inflation is low, and vice versa. Studies have found that assets like real estate and TIPS can be more consistent inflation hedges than gold. In short, gold may help protect wealth in certain scenarios but should not be relied on as a guaranteed inflation hedge.
Returns, costs, and risks
Over long periods, stocks have outpaced gold. For example, over many recent decades the S&P 500’s annualized returns have exceeded those of gold by a substantial margin. Gold also carries extra costs: it often sells at a premium, may require paid storage, and in many jurisdictions is taxed at higher collectible rates. It is volatile, and because it yields no cash flow, its long-term expected real return is modest compared with income-producing assets.
Why own gold at all?
Gold’s value comes from scarcity, durability, and a long history as a store of value. It can act as portfolio insurance—a small allocation can reduce portfolio volatility and provide a hedge against extreme scenarios. Many advisers suggest keeping gold allocations modest, commonly in the 5–10% range, so it can serve as ballast without dragging down long-term growth.
Alternatives and perspective
Newer alternatives like cryptocurrencies offer different risk and return profiles; some investors with high risk tolerance favor crypto for outsized upside, while those seeking a long-established store of value tend to prefer gold. Ultimately, gold is best viewed as insurance rather than a primary growth asset. Use it sparingly and strategically while building wealth through stocks, real estate, and other productive investments.
