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With rising inflation, many investors are asking whether gold is a worthwhile investment. Gold can act as portfolio insurance and a diversifier, but over long periods it has tended to underperform stocks. It’s most appropriate for cautious investors who want stability rather than high growth.
What gold is and how it works
Gold doesn’t generate income like stocks or bonds; its value depends on broad consensus that it’s worth something. That reputation, combined with its limited supply, is why gold can hold or increase in price despite producing no yield.
History and long-term performance
A major turning point came in 1971 when the U.S. ended the dollar’s convertibility to gold, effectively ending the gold standard. After that, gold prices surged in the 1970s and early 1980s, then spent long stretches trading flat. Over many decades, stocks have outperformed gold: the S&P 500 returned substantially more annually than gold across long time frames.
Ways to invest in gold
– Physical gold: bars and coins bought from dealers, the U.S. Mint, or through apps that buy and store gold for you. Some services let you take possession of the metal; others store it for a fee. Fractional bar ownership is also an option if you don’t have funds for a full bar.
– ETFs and mutual funds: These offer easy market access without storage hassle. Examples include SPDR Gold Shares (GLD), Invesco DB Gold Fund (DGL), Franklin Gold and Precious Metals Fund (FKRCX), Sprott Physical Gold Trust (PHYS), and Fidelity Select Gold Portfolio (FSAGX).
– Mining stocks and ETFs: Buying shares in miners or a miners ETF, like VanEck Gold Miners ETF (GDX), is another route. Individual miners include companies such as Barrick Gold and Equinox Gold.
– Futures and other derivatives: Contracts to buy or sell gold at a future date suit experienced investors and require careful study before use.
Coins vs. bars
Neither is universally better. Coins tend to be easier to verify and more liquid; bars can be more cost-efficient per ounce. Many investors hold a mix.
Gold and inflation
Gold is often seen as an inflation hedge, but the relationship is inconsistent. There have been periods when gold rose with inflation and others when the two moved independently or even inversely. Studies have found that real estate and 10-year TIPS have historically been more reliable inflation hedges than gold, which often ranks behind them.
Pros and cons
Pros:
– Long track record as a store of value
– Limited supply offers a price floor and upside when demand rises
– Diversification benefits—small allocations can reduce portfolio volatility
Cons:
– No cash flow and a long-term expected real return near zero
– Often sells at a premium and incurs storage, insurance, and transaction costs
– Taxed as a collectible in many jurisdictions, which can reach higher rates
– Susceptible to volatility and counterfeiting risks (e.g., tungsten-filled fakes)
– Tends to underperform equities over long holding periods
Practical allocation advice
A small allocation—commonly 5% to 10% of a portfolio—can provide ballast without unduly limiting growth. How you split that allocation depends on goals: physical gold for worst-case protection, an ETF for simple diversification, and mining stocks for exposure to potential upside.
Gold versus cryptocurrency
Cryptocurrencies like Bitcoin are newer and more speculative. Bitcoin has outperformed both gold and stocks in recent years, but it carries much higher uncertainty. Investors seeking potentially large returns and who tolerate high risk may prefer crypto; those who want a long-established store of value will likely favor gold.
Bottom line
Think of gold as insurance, not a growth engine. It can smooth returns and provide a safeguard in turbulent times, but it shouldn’t replace productive assets like stocks or real estate in a long-term wealth-building plan. If you choose to own gold, keep the allocation small, be mindful of costs, and pick the vehicle that matches your goals—physical metal for security, ETFs for convenience, or mining stocks for leverage.
