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Originally Published: Nov 20, 2023
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Originally Published: Nov 20, 2023 Last Updated: May 22, 2024 12 min read

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Throughout history, gold and other precious metals have maintained their status as fixtures in the ever-evolving global financial markets. Investors often turn to gold because of its historical role as a hedge against economic and geopolitical uncertainty. Unlike some other asset classes, gold serves as a store of value, retaining its value and purchasing power regardless of macro trends or currency devaluation.

As a safe-haven asset, people have turned to gold investments time and time again when they’re worried about the economy. This article delves into the many factors that influence the precious metal’s price, how it’s used to diversify portfolios and whether now is an opportune time to allocate resources to gold.

Read on to learn if the timeless metal is a good fit for your personal finance goals.

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Is it a good time to buy gold?

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.

Investors looking to diversify their portfolios and add a store of value often wonder if investing in gold would achieve that. The precious metal serves as a safe-haven asset during times of elevated inflation, high interest rates, currency movements and market volatility.

However, the price of gold and the current market for it are impacted by several factors. Therefore, deciding precisely when to invest in it requires numerous considerations. The following section details many of them.

When to invest in gold

If you’re thinking about adding gold to your investments, there is no shortage of ways to gain exposure. Whether that means investing in the precious metal by buying gold bars and coins, opening a gold IRA, or owning a gold-mining company’s stocks or gold exchange-traded funds (ETFs), you should contemplate the following criteria before making an investment decision.

During times of higher inflation

Gold is a popular investment when inflation is high. That’s because the precious metal is seen as a relatively price-stable, safe-haven asset when the cost of consumer goods and services rise, and purchasing power subsequently falls.

Since hitting its all-time high in 2020, the price of gold challenged that mark twice in 2022 and twice in 2023, during which time inflation was at or near 41-year highs. Similarly, in the late 1970s and early ‘80s when inflation nearly doubled within three years, the price of gold broke its then-all-time-high twice. As inflation continues to linger well into 2024, gold once again set a new all-time high April.

Demand for the precious metal during these periods evidences that inflation is a key driver of gold prices. For example, in the first quarter of 2022 when U.S. inflation began worsening, gold demand was 34% higher than the same quarter the year prior. That year-over-year increase represented the highest quarterly demand since Q4 of 2018 and was 19% higher than the five-year average.

During times of economic uncertainty or geopolitical unrest

Geopolitical unrest can have a positive effect on the price of gold. As global tensions increase, so too can precious metal prices. Investors can turn to gold as a safe-haven asset in order to protect their wealth. For example, in Q1 of 2022 when Russia invaded Ukraine, the price of gold jumped 6%. In Q4 of 2023, after war broke out between Israel and Hamas, the price of gold climbed 7.5% in the first month following the conflict.

Conversely, geopolitical stability can have the inverse effect on gold prices. During relatively stable periods, prices can stagnate or fall as investor sentiment can shift in favor of higher-risk assets.

Uncertainty of confidence in the global financial system is also a driver of gold prices. As America's deficit continues to bloat to unsustainable levels, central banks around the world have purchased more gold from 2023–2024 than any other time in recorded history. This is considerably due to concerns about the U.S. being unable to make good on its debt obligations.

When you want to diversify your portfolio

Gold, like other precious metals and commodities in general, also serves as a great way to diversify your investment portfolio. However, unlike other precious metals and commodities, gold can be thought of as money, literally. It has been reclassified as a Tier 1 asset by central banks, hence the record gold buying by those institutions between 2023 and 2024.

The goal of diversification is simple: Holding various asset classes can help reduce the overall losses experienced by one or several assets, thereby minimizing risk exposure.

By including gold in a well-diversified portfolio, you’re not only gaining precious metals exposure but adding an asset class that can not only perform well during high-inflation/high-interest-rate environments and retain its value over the long term, but can also outperform during market downturns when stocks, ETFs and mutual funds may suffer.

When you’re looking for a safe investment

When considering stores of value, gold consistently finds itself near or at the top of the list. For this reason, it provides a layer of safety, which makes gold appealing to many long-term investors. Because of this, it can also play a role in retirement, when investments should be considerably more conservative. With gold IRAs, you’re able to include assets such as precious metals that you can’t hold in traditional or Roth IRAs.

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The risks of buying gold

Like all asset classes, there are varying degrees of risk involved. That’s no different for gold. And while owning gold stocks and ETFs does provide exposure to gold, you don't own the actual asset and are prone to counterparty risk. But even with the physical asset, there are some risks investors should be aware of. The following section explains four of them.

Gold isn’t income-producing

Albert Einstein referred to compound interest as the eighth wonder of the world, further stating that “He who understands it, earns it … he who doesn’t … pays it.” Compound interest is why income-producing investments are popular among long-term investors. Their ability to produce interest on top of price appreciation allows gains to grow faster.

Gold is not an income-producing investment. 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. By owning gold, you’re risking unrealized gains in other asset classes that can produce income and, by extension, offer compound interest.

Bull markets

When equities are performing well during bull markets, precious metals can see their prices stabilize or reverse. That’s because investors are able to enjoy better returns from higher-risk assets such as stocks, ETFs and mutual funds, than they would from gold investments.

For example, in the wake of the 2008 Global Financial Crisis, gold hit its then-all-time-high in August 2011 just as the equity markets proved they were once again in bull territory. The price of gold subsequently fell over 41% before bottoming in December 2015.

For bear markets, the opposite holds true. Investors will flee higher-risk assets in search of the safety gold can provide. However, historically, bull markets last longer and provide larger gains than bear markets’ losses:

  • The average bull market lasts 2.6 years, while the average bear market lasts just 9.6 months.
  • The average bull market gain is 111%, compared to the average bear market loss of -35%.

Storage and insurance costs

The costs associated with storing and insuring gold can be a detriment to overall potential gains. Since precious metals held in self-directed gold IRAs must, by law, be held at IRS-approved depository facilities, you’ll incur fees charged by the custodian to oversee the storage and insurance of your gold.

Since these fees are charged annually, over the long term they can erode your potential gains. Storage and insurance fees can range from 0.5% to 1% of the value of your precious metals each year. Additionally, annual account maintenance fees can be assessed. However, these fees are typically less than fees charged by asset managers.

Price volatility

The gold market is typically seen as being more stable compared to other markets. Illustrating this, since the 1930s, the U.S. dollar has lost 99% of its purchasing power relative to gold.

However, gold isn't immune to price fluctuations and market volatility of its own. There are numerous factors that can contribute to this, including its inverse relationship to the fiat currency, its limited nature and industrial use.

Gold’s inverse relationship to paper currency, like the U.S. dollar, can impact its prices. When the gold standard was finally abandoned, it marked the end of its run as the de facto monetary system for the world. From that point forward, gold and the dollar were freed from one another and in doing so, their prices have tended to move in opposite directions since.

Furthermore, gold is a finite resource. A total of 244,000 metric tons have been discovered, including 187,000 produced and 57,000 in underground reserves. When mining stocks are reduced, demand can outstrip supply, driving the price up. But when new gold deposits are discovered and supply is thereby increased, prices can suffer.

Industrial applications for precious metals can also impact the market. Gold is used in the aerospace, automotive, defense, electronic and medical industries. And although technology accounted for just 6.56% of all gold demand in 2022, those uses could be expanding with the advent of newer tech applications. Gold is used in electric vehicles’ circuit boards, solar cells and computer chips.

Lastly, gold has never been worth zero and due to inflation, the precious metal essentially has a persistently rising “floor.” As inflation continues, the cost to mine gold continuously increases, thereby, continuously increasing the price of gold.

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Gold price FAQs

What drives the gold market?

Beyond supply and demand, which can be impacted by fluctuations in the amount of gold produced and its industrial applications, numerous other factors contribute to the price of gold. The value of the U.S. dollar, bull and bear markets, inflation, interest rates and geopolitical unrest can all impact the gold market.

How often do gold prices change?

Gold prices change daily. Prices are published twice a day by the London Bullion Market Association via the ICE Benchmark Administration (IBA), which consists of multiple banks, an oversight committee and a panel of internal and external chair members. The IBA sets gold spot prices, meaning the current market value price.

Should you invest in gold this year?

Whether or not you invest in gold comes down to your personal preferences. If you want to hedge against inflation, diversify your portfolio with a safe-haven asset and provide yourself with downside protection for your other holdings, gold could be a good fit. However, if you're interested in income-producing assets, don't want to pay recurring annual fees in an IRA and prefer higher-risk assets, perhaps gold isn't right for you.

Summary of Money's Is It a Good Time to Buy Gold?

Gold is historically a safe and stable investment that can protect you in times of economic and geopolitical uncertainty. Its price holds up well during times of high inflation and high interest rates, and sees increased demand and price appreciation during traditional equity bear markets rather than bull markets. Like all assets, the price of the precious metal and its demand ebb and flow depending on numerous circumstances. If you’ve determined that now is the right time, read our guide on how to invest in gold.

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