7 Best Reasons To Invest in Gold

What To Know as Gold Hits Record Prices

Reviewed by Thomas Brock
Fact checked by Vikki Velasquez

A traditional investing axiom is that gold prices spike when there are economic uncertainties and geopolitical tensions. Yet, recent years have put the lie to this truism as gold has grown significantly while inflation, unemployment, and federal debt rates spiked, and also when all of these came down. In addition, the rally of the past few years comes when stock market sentiment has been increasingly bullish, creating a paradox that has left many analysts scratching their heads.

But what hasn’t been questioned is gold’s place as part of a well-diversified portfolio.

Key Takeaways

• Gold reached record highs in the mid-2020s despite bullish stock market sentiment.
• The precious metal has decoupled from its traditional correlations with real interest rates and the U.S. dollar.
• Global economic uncertainty and geopolitical tensions are significant drivers of gold’s appeal since it’s a safe-haven asset.
• Increasing accessibility through exchange-traded funds (ETFs), physical bullion, and digital platforms has made gold investing more convenient.
• Gold’s intrinsic value and industrial applications contribute to its long-term stability as an investment.

As such, many analysts think gold has broken free from its traditional correlations with real interest rates and the U.S. dollar, suggesting a fundamental shift in how investors perceive this ancient store of value—or a misunderstanding of what previously was behind it.

As researchers continue to decipher what’s driving up global demand—China was thought to be a major source, but even after demand dropped there, prices still headed upward worldwide—the price has hit nominal records repeatedly in recent years. There are clearly significant reasons to invest in it. While the inflation-adjusted record high remains the peak that gold hit during the waning days of disco in 1980, it no longer appears as insurmountable a record as it once did.

All this perhaps matters little to investors so much as its actual price moves. From central banks diversifying their reserves to individual investors seeking a safe haven, gold’s appeal spans the global financial landscape.

But what drives this enduring fascination with the yellow metal? Why, in an era of digital assets and complex financial instruments, does gold continue to hold its ground? Below, we provide seven compelling reasons that owning gold, even as it hits nominal heights, can be prudent for today’s investors.

Given its often valuable investment returns, here are the major reasons gold can be good to include in a portfolio:

1. A History of Holding Its Value

Gold has maintained its value over time, unlike paper currency, coins, and many other assets. Behind real estate, it’s likely the second oldest asset still traded, with many seeing it as a way to pass on and preserve their wealth from one generation to the next. It seems to be the metal we fall back on when other forms of currency don’t work, which means it always has some value as insurance against tough times. It’s also an often-used material in the technology, dentistry, and other industries.

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. In addition, gold has a unique and beautiful color. 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. These explanations often seem as good as any other when it comes to the gold’s fluctuating prices.

 2. Hedge Against Economic Uncertainty

As we’ve seen much too often this decade, economic landscapes can shift rapidly because of pandemics, geopolitical tensions, and financial crises. Gold’s ability to maintain its value during such tumultuous times has often made it an invaluable hedge against economic uncertainty.

The 2020s surge in gold prices arrived at a time when traditional economic indicators painted a decidedly mixed picture, especially globally. While the U.S. roared back economically after the pandemic, that rosy scenario was not widely shared, with most economies stagnant at best and others, like China, sitting precariously on the precipice of a full recession for several years.

Financial analysts often repeat that gold is a hedge against inflation. Given the data of the 2020s, it’s better to say it’s a hedge against economic uncertainty since it’s risen in unexpected ways relative to inflation.

Despite strong employment figures and rising wages in the U.S. and elsewhere, gold is still being bought as a safe haven; it’s among the first goods sought (other than food) when the local money supply turns hyperinflationary.

Still, gold’s recent performance is noteworthy because it has broken from its usual correlations. Typically, gold prices fall when real interest rates rise, but this relationship has seemed weak as U.S. federal interest rates flattened and then started to fall in 2024. Similarly, gold and the U.S. dollar have strengthened in tandem, defying their usual inverse relationship.

To see what we mean, compare the charts below. The first two are the inflation rates and employment rates in the U.S. The last two charts are the historical spot prices and monthly percentage shifts in gold over the previous decade.

While no one would suggest that gold prices change only because of the macroeconomic climate in the U.S., the dominance of the U.S. dollar on the international scene would at least suggest it would have an outsized effect on gold prices in the world market. Yet, it’s hard to discern any—and analysts doing far more fine-grained work have concluded much the same.

This decoupling could suggest investors are viewing gold through a new lens. Rather than just a hedge against inflation or currency devaluation, gold is increasingly seen as a safeguard against all kinds of economic uncertainties.

Moreover, central banks, particularly in emerging markets, have been increasing their gold reserves. This trend, as reported by the World Gold Council, underscores gold’s role as a strategic asset in times of economic uncertainty. By diversifying their reserves with gold, these institutions are trying to insulate themselves from economic turbulence.

Warning

“The normal relationship between gold and real interest rates has been broken,” one analyst told the Financial Times in late 2024, reviewing recent gold prices, market volatility, and macroeconomic data.

3. Preserving Your Capital

It still matters that demand for gold comes from it being long regarded as a reliable hedge against inflation. When governments and central banks carry out expansionary monetary policies—say, by dropping interest rates—the risk of inflation eroding the purchasing power of fiat currencies becomes a significant concern for investors.

Still, even if a rise in inflation might not lead to gains in gold, the metal remains a means of preserving capital. Unlike fiat currencies, which can be printed at will (a problem found mostly in developing economies), the global gold supply increases overall by only about a percentage point a year (with much volatility in between).

Note

Although inflation soared in 2022, gold prices declined for much of that year, driven in part by the strength of the U.S. dollar against other currencies. Then, as inflation began to ebb in 2023 and then drop in 2024, gold continued its rise.

4. Portfolio Diversification

The most compelling reason to own gold is its role in portfolio diversification. Gold’s properties as an asset class make it an excellent tool for reducing overall portfolio risk and potentially enhancing long-term returns.

The key to diversification is finding investments that are not closely correlated with one another. Gold has historically had a negative correlation to stocks and other financial instruments. Recent history bears this out:

• The late 1970s were great for gold but terrible for stocks.
• The 1980s were great for stocks but terrible for gold.
• The late 1990s and mid-2000s were excellent for stocks but horrible for gold.

As such, gold has typically had a low or negative correlation with other major asset classes, such as stocks and bonds. This means that when other assets are underperforming—though, again, 2023 to 2024 seems to counter this—gold may hold its value or even appreciate, helping to smooth out portfolio returns over time.

While bad news for those who make the case that gold inversely correlates with stocks and other assets, its lack of correlation with stocks, bonds, and so on—its prices seem to have their own logic (or lack thereof)—means it’s excellent for diversification.

Here’s a summary of reasons gold is effective for portfolio diversification:

• Low correlation: Historically, gold prices have often moved independently of stock and bond markets. For example, during the stock market crash of 2008, gold prices rose, providing a cushion for diversified portfolios. Then, in the 2020s, as the market rose, gold bucked expectations and continued its rise.
• Safe haven in crisis: In times of geopolitical tension or economic uncertainty, gold often benefits from a flight to safety. The mid-2020s conflicts in Europe and the Middle East have contributed to gold’s appeal in this regard.
• Currency diversification: For investors heavily exposed to a single currency, gold provides a way to diversify currency risk. While gold and the U.S. dollar have recently strengthened in tandem, breaking their usual inverse relationship, it’s still a hedge for many the world over with weaker local currencies.
• Long-term stability: While gold can be volatile in the short term, it has maintained its value over very long periods, making it a stable component in a long-term investment strategy.

5. Geopolitical Hedge

As we’ve seen, gold has long been considered a “crisis commodity,” with its value often rising during times of geopolitical tension or conflict. This characteristic makes it an effective hedge against geopolitical risks, helping protect investors’ portfolios during perilous times. Beyond its safe haven status, here are further reasons gold acts as a hedge against geopolitical risks:

• Currency independence: Unlike fiat currencies, gold is not tied to any particular government or political system. This makes it less vulnerable to the direct effects of political decisions or conflicts between nations.
• Historical precedent: Throughout history, gold has maintained its value during wars, revolutions, and other periods of geopolitical upheaval. This track record gives great confidence in its ability to preserve wealth during turbulent times.
• Global recognition: Gold is universally recognized and valued, making it a reliable store of wealth regardless of geopolitical boundaries or alliances.
• Supply chain resilience: Geopolitical events can disrupt supply chains for many commodities, but gold’s compact nature and high value-to-weight ratio make it relatively easy to transport and trade even in challenging circumstances.

Advisor Insight

In the U.S., mining in Nevada accounts for about three-quarters of all domestic production, with another 13% from Alaska.

6. Supply Constraints

Much of the supply of gold in the market since the 1990s has come from sales of gold bullion from the vaults of global central banks. This selling by global central banks slowed greatly after 2008. Production has been increased, with recycled gold making up the difference to meet demand.

Annual gold-mining output fell to 2,444 metric tons in 2007 from 2,573 metric tons in 2000. Since then, gold production has posted a decade of gains, peaking at 3,300 metric tons in 2018 and 2019 before growing again to 3,644 metric tons in 2023. Meanwhile, as you can see in the chart above, the demand for gold has just about doubled in the past decade.

59,000 Tons

U.S. gold reserves are estimated at 3,000 tons, with production at about 170 tons. Worldwide, gold reserves are estimated at 59,000 tons.

7. Liquidity and Accessibility

Gold is heavy, requires security (either in human form or impregnable vaults), and seems the last thing you’d want to be carrying around in an emergency. Hence, it’s long been a quintessential illiquid asset. In addition, its value has often been tied to being anything but accessible.

Not anymore. Unlike some alternative investments, gold is highly liquid, given the advent of gold exchange-traded funds and digital gold platforms. This liquidity allows investors to adjust their portfolio allocations more easily. It’s not just that gold is traded on global markets 24 hours a day, ensuring investors can get cash when needed. It’s also that gold is at the basis of exchange-traded funds and company shares that are liquid as such investments get.

Gold ETFs

The rise of gold exchange-traded funds (ETFs) has vastly changed how people invest in gold—the first ETF, the SPDR Gold ETF (GLD)—launched in 2004—tracking its price through the fund management company’s holdings. Gold ETFs offer several advantages:

• Easy to buy and sell through regular brokerage accounts
• No storage and security costs
• Highly liquid, with some of the largest gold ETFs trading millions of shares daily
• They have diverse holdings, from storing the metal in secure locations to shares of companies that produce and mine the substance to an array of gold-based derivatives.

For more on these funds, check out Investopedia’s list of high-performing gold ETFs.

Gold Mining Stocks

Investing in gold mining companies offers exposure to gold prices with the potential for additional returns (or mitigating lower prices in the commodity) through company performance. These stocks are highly liquid and on the major stock exchanges.

• Can outperform gold prices during bull markets
• Offer dividends in some cases

Examples include Newmont Corporation (NEM) and Barrick Gold (GOLD).

For more on these and other companies, check out Investopedia’s list of high-performing publicly traded gold companies.

Gold Futures and Options

For more advanced investors, gold futures and options provide further ways to gain exposure to gold prices, often with the benefit of leverage. Gold futures are contracts traded on exchanges in which a buyer agrees to buy a specific quantity of the commodity at a preset price at a date in the future.) Options are another derivative—they give you the right to buy or sell a gold-related asset without the obligation to do so.

Many hedgers use futures contracts to manage and minimize the price risks associated with the metal. Speculators can also use futures contracts to participate in the market without any physical backing.

How To Invest in Gold

Here are the primary ways to add gold to your investment portfolio:

• Gold ETFs and mutual funds: These offer exposure to gold prices without owning physical gold. They’re highly liquid and can be easily bought and sold through brokerage accounts.
• Physical gold: This includes gold bullion, coins, and jewelry. While it offers the security of tangible assets, it requires secure storage and insurance.
• Gold mining stocks: Investing in companies that mine gold can provide leveraged exposure to gold prices, with the potential for dividends. However, these stocks carry company-specific risks.
• Gold futures and options: These derivative products are for more sophisticated investors, offering the potential for leveraged gains but also carrying higher risks.

Each method has its own advantages and potential drawbacks. ETFs and stocks offer liquidity and ease of trading, while physical gold provides a tangible asset. Futures and options can offer leverage but require more market knowledge. The choice depends on your investment goals, risk tolerance, and preference for physical versus “paper” assets.

Note

India is the second-largest gold-consuming nation in the world. It has many uses there, including jewelry. As such, the Indian wedding season in October is traditionally the time of the year that fuels the highest global demand for gold.

How Not To Invest in Gold: Many Companies Are Mining Fraud

In the section above, we left out “digital gold” among the ways to invest in gold. These are digital certificates representing ownership of gold and are said to combine the benefits of physical ownership with digital convenience. But leaving that off our list was no slip. Nor was it an accident we left aside offers of gold coins stamped with Darth Vader and Snoopy icons.

Regulators worldwide, including the U.S. Commodities Futures Trading Commission (CFTC), have repeatedly warned investors of scams involving these and other pitches for gold.

While gold is very much a legitimate investment, the precious metals market is plagued by fraudulent schemes pitched on platforms that range from the most professional looking to the dodgiest—some put together, it seems, with the programming skills and design aesthetic of a mid-1990s college student.

Warning

Many “deals” on gold are offered online and through spots on conspiracy-minded and even more mainstream political podcasts and radio shows. To say the least, this is not where experienced investors look for new trading prospects—nor should you.

Investors should exercise extreme caution and due diligence before engaging in any gold-related investments, but especially those offered off U.S. regulated exchanges and other well-regulated industries, such as banks. Here are some of the key warnings regulators and law enforcement officials keep repeating:

1. Beware of “easy profit” promises: Be very skeptical of claims that you can profit from news events or guaranteed high returns.
2. Check credentials: Verify the registration and background of any company or individual offering precious metals investments. You can contact the CFTC at (866) 366-2382 for this information.
3. Be wary of high-pressure sales tactics: Watch out for persuasion techniques like false urgency, claims of limited supply, or promises of special insider knowledge. If you see any of this, walk away.
4. Scrutinize financing agreements: Be extremely cautious of offers involving financing agreements where you only pay a small percentage upfront. These often involve hidden fees and risks. This is the time to get a professional advisor or legal expert involved.
5. Verify storage claims: If a company claims to store metals for you, insist on independent proof of the storage facility’s existence and your ownership.
6. Understand the full costs: In leveraged or financed precious metals transactions, you may be responsible for additional payments if prices move unfavorably.

We could list more but, in general, additional tips from regulators involve being extremely wary (if not downright allergic) should a company state that precious metals transactions are not regulated, they can’t identify where physical metal is stored, or claims to deliver to overseas facilities. As with any investment, before getting your money involved, ask how the product meets your financial needs, what the person’s qualifications are, and how they are compensated.

Note

To bring home its concerns about gold frauds, the CFTC isn’t bothering with subtlety. Here’s the headline for one of its recent fraud advisories on the topic: “Gold Is No Safe Investment.”

Remember, legitimate investments don’t require secrecy or pressure tactics. Indeed, legitimate financial companies almost always find that word of mouth is their best marketing—your success in investing with them is a great first step in that process for real professionals.

Why Should I Invest in Gold?

There are many reasons to consider adding gold to your investment portfolio. The precious metal has a history of maintaining its value, making gold a useful hedge against inflation. Gold prices tend to increase when the U.S. dollar is underperforming or during times of economic and political uncertainty. Finally, gold can provide an important level of diversification to your portfolio, as gold prices have historically shown a negative correlation with other asset classes.

What Determines the Price of Gold?

Gold prices can be volatile in the short term, but the metal has maintained its value over the long term. In general, movements in the price of gold depend on supply, demand, and investor behavior. Because the metal is often used to hedge against inflation, the pace of inflation—and market expectations for future inflation levels—can have an impact on gold prices. In addition, deteriorating economic conditions may bolster gold prices because the metal is seen as a relatively safe investment in difficult times.

What Is the Difference Between 24k, 22k, and 18k Gold?

The difference lies in the gold content: 24k is pure gold, 22k contains 91.67% gold, and 18k contains 75% gold, with the remainder being other metals.

The Bottom Line

Gold can be an important part of a diversified investment portfolio because its price increases in response to events that cause the value of paper investments, such as stocks and bonds, to decline. Although the price of gold can be volatile in the short term, it has maintained its value over the long term.

Through the years, gold has served as a hedge against economic uncertainty and the erosion of major currencies, and thus is an investment well worth considering.