Pros and Cons of Having Gold in Your Portfolio

The price of gold is riding near a record high at $2630 per ounce (£2112) as 2025 begins. In the midst of a financial crisis in 2024, Egyptians helped drive up an already bullish market in gold as they turned to it as a hedge against the country’s ever-worsening currency. Even though gold no longer backs the U.S. dollar (or other worldwide currencies, for that matter), it still carries importance in today’s society. One needs to look no further than the balance sheets of central banks and other financial organizations like the International Monetary Fund.

To hedge against economic uncertainty

Understanding the difference between how the two metals are used, their economic sensitivities and technical characteristics can help you determine which metal may benefit your portfolio. Banks often offer physical gold at a lower markup than dealers, but finding a branch that provides gold can be hard to come by as most banks in the U.S. don’t sell physical gold or other precious metals. While there’s no guarantee that gold will continue to climb, many analysts are predicting that gold’s price could reach or even exceed $3,000 per ounce by the end of the year. This dual potential for short-term profit and long-term reliability makes this an opportune moment to consider adding gold bars and coins to your portfolio. A balanced approach is key when adding gold to your portfolio before 2025.

Does gold investing make sense with the price high? Here’s what experts say.

The U.S., under President Franklin D. Roosevelt, officially abandoned the standard in 1933. A year later, the Gold Reserve Act of 1934 gave the U.S. government title to all the gold coins in circulation and ended the minting of any new gold coins. The era of the gold standard emerged in the 19th century, with the U.K. It gained broader acceptance in the late 1800s, with many countries, including the U.S., Australia, Canada, and Germany, embracing the system (silver is still used in parts of Asia, the Middle East, and Latin America). This ended at the outbreak of World War I in 1914 when many countries suspended the convertibility of their currencies into gold to finance the war effort.

The best way to invest in gold is through a diversified portfolio over the long term. Whether physical gold or gold-backed security, gold investments offer greater long-term returns. If you don’t want the hassle of storing your investments, then consider the second option. This is to invest in gold indirectly via an exchange-traded fund (ETF) or by buying shares directly in gold mining companies.

This brings the crucial benefit of portfolio diversification, which means holding assets that move in price independently and differently from each other. Gold certificates represent ownership of a specific amount of gold stored by the issuer, usually a bank. They are essentially paper documents that certify the holder’s claim to a certain quantity of gold. This allows you to benefit from gold’s price moves without the need to manage the physical asset.

1. The idea that gold preserves wealth is even more important in an economy where investors face a declining U.S. dollar and rising inflation.
2. Connect with your Morgan Stanley Financial Advisor to determine how adding gold or silver to your portfolio might help you achieve your long-term financial goals.
3. It’s also that gold is at the basis of exchange-traded funds and company shares that are liquid as such investments get.
4. Gold is used in electric vehicles’ circuit boards, solar cells and computer chips.
5. No commercial entities are allowed to enter into off-exchange commodity transactions using loans or margin.
6. Futures and options can offer leverage but require more market knowledge.
7. Consider “dollar-cost averaging,” or buying fixed, smaller amounts over time.

How You Can Invest in Gold and Silver

The volatility in silver prices can be two to three times greater than that of gold on a given day. While traders may benefit, such volatility can be challenging when managing portfolio risk. Gold also acts as a hedge against inflation, and a counterweight to other equities more susceptible to the economy. One way to play is to buy shares of companies in the mining, refining, or other aspects of the gold production business. About 300 companies, aka “miners,” are listed on major stock exchanges. Their share prices generally reflect the movement of the metal itself.

Investing in Precious Metals

The information provided on this page is for educational purposes only and is not intended as investment advice. “They’ve become correlated in recent years,” he says, limiting their effectiveness for portfolio diversification. “With favorable conditions continuing to prevail in markets today, we may see gold well over that target soon,” says Brett Elliott, director of marketing at American Precious Metals Exchange (APMEX). For more on these and other companies, check out Investopedia’s list of high-performing publicly traded gold companies. Gold doesn’t corrode and can be melted over a common flame, making it easy to work with and stamp as a coin—about a third of the gold sold is in fact recycled. The atoms in gold are heavier, and the electrons move faster, creating the absorption of some light—a process that took until Einstein’s theory of relativity to fully flesh out.

Alternatives to Investing in Precious Metals

These explanations often seem as good as any other when it comes to the gold’s fluctuating prices. But what hasn’t been questioned is gold’s place as part of a well-diversified portfolio. Finding the right financial advisor may seem intimidating, but it’s not that difficult. Ramsey Solutions is a paid, non-client promoter of participating Pros.

Accessing such website or following such link through the material or the website of the firm shall be at your own risk and we shall have no liability arising out of, or in connection with, any such referenced website. However, even as inflation has subsided over the last several years, gold continued to set new all-time highs, the last of which came in October 2024 when the Consumer Price Index reading was 2.6%. Gold has out performed the S&P 500 since 1971 when President Nixon ended the gold standard. The precious metal has also outperformed the S&P 500 since the beginning of this century and over the past five years.

1. But what hasn’t been questioned is gold’s place as part of a well-diversified portfolio.
2. Elliott points out that while inflation has eaten away more than 20% of the dollar’s purchasing power since 2020, gold has risen from under $2,000 to over $2,700 per ounce in four years.
3. When considering stores of value, gold consistently finds itself near or at the top of the list.
4. However, these fees are typically less than fees charged by asset managers.
5. It’s not just that gold is traded on global markets 24 hours a day, ensuring investors can get cash when needed.

While some may want to dive in heavily given current market conditions, Charnet recommends limiting gold to no more than 10% of your investment portfolio — even in good times for the precious metal. This allocation is enough to benefit from its protective qualities while maintaining healthy diversification. Michael Boggiano, managing partner at Wealthcare Financial, warns that rising debt levels could devalue the U.S. dollar, potentially triggering a financial crisis. This scenario could push gold prices even higher as investors seek safer alternatives.

He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. That’s is buying gold a good investment why instead of trying to time the perfect entry point, experts recommend a steady approach.

The U.S. established a bimetallic standard in 1792, shortly after its founding. The bimetallic standard simply stated that every monetary unit in the U.S. had to be backed by either gold or silver. For example, one U.S. dollar was equal to 24.75 grains of gold, and the coins represented the gold or silver on deposit in the U.S. You earn capital gains when you sell a dedicated investment, such as gold, at a profit. When that happens, the IRS requires that you pay capital gains tax (with few exceptions, like with a Roth IRA).

While you’re free to buy and hold physical gold, doing so means incurring storage and insurance expenses since your home may not be the best place to keep it safe. A physical gold investment comes with an ongoing risk of theft, so it’s wise to keep your gold bars and coins in a safer and more protected place, like a bank safe deposit box. The fees to store and insure the precious metal can add up to a large amount and detract from your investment gains. This cost is one reason why some investors prefer to buy gold mining stocks or other gold-backed paper assets. Unlike traditional equity assets that can produce income, such as stocks, ETFs and mutual funds, or other investments like real estate, bonds and CDs, precious metals and other commodities don’t produce yield. The only return physical gold can produce is when its price rises and you sell it.