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The price of gold is up around 40% since January of last year, and some experts predict the price of this shiny, metallic asset could continue to climb even higher in 2025.
Part of the recent uptick in gold prices was caused by central banks buying up gold. At the same time, some investors are flocking to gold as a “safe haven” amidst concerns regarding inflation and other economic volatility.
While some investors may be jumping on the “gold rush” bandwagon to capitalize on short-term gains, the asset class may better serve investors who are in it for the long haul.
“Although a cadre of investors trade in-and-out of gold, usually it is viewed as a long-term holding and as an asset diversifier within an investment portfolio,” explains Michael Ashley Schulman, CFA and Chief Investment Officer (CIO) at Running Point Capital Advisors.
So, how exactly can investing in gold help you meet your long-term goals? And what are the drawbacks? Below, we’ll detail what you need to know about gold investing as a long-term strategy.
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What to know about investing in gold to meet long-term goals
Gold is just one piece of the long-term investment strategy puzzle, but it’s a piece that can lend stability and resilience to your portfolio.
“During periods of economic uncertainty, currency devaluation, trade disputes, or global crises, investors often seek wealth protection through gold and similar assets,” explains Schulman.
For one, gold tends to hold its value in the long run, sometimes even increasing in price when currency is losing value. “Gold’s unique position as currency, commodity, and collectible, combined with its role in central bank reserves, reinforces its reputation as a store of value and potential inflation hedge,” says Schulman.
Some investors also believe that having gold in your portfolio can help you weather other economic crisis, like downturns in the stock market.
Gold is generally an uncorrelated asset, meaning its returns don’t follow the same patterns as the stock market. So, if the stock market takes a dip, the idea is that gold may help offset your stock market losses.
These factors are partial reasons why the price of gold has increased so dramatically over the last year and why the metal is now approaching the $3,000 price point.
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Can gold investments offer long-term growth?
Hedging against inflation and preserving wealth are important, but the ultimate goal of a long-term investment portfolio is growth. So, while gold might be a good store of value, how does it compare to growth-oriented investments like the stock market?
Not favorably, says Robert Johnson, professor of finance at Creighton University’s Heider College of Business. “Simply put, if one has a long time horizon — say, 20 or more years — one should not invest in gold or other precious metals,” Johnson argues. “The long-term returns are far below those of equities.”
But what about diversifying your portfolio and using gold to protect against inflation and loss?
Any increased stability gold offers may not be worth the reduction in long-term returns, especially for younger investors in the accumulation phase, who should be focused on growth.
“Gold investing is highly speculative,” says Johnson. “The price of gold is determined more by international, political, and psychological factors than by normal economic factors of supply and demand. Those investors believing that gold is a safe haven have been sorely mistaken in the past.”
Holmes Osborne, Principal at Osborne Global Investors, agrees, explaining that gold can be hard to predict because it’s an asset that doesn’t generate any cash flow.
In other words, gold investing probably isn’t right for passive investors. Johnson says the best investing strategy for most investors is to follow the KISS philosophy: keep it simple, stupid. “People should invest in a low-fee, diversified equity index fund and continue to invest consistently whether the market is up, down, or sideways,” he explains.
But if you prefer an active approach to investing and you’re okay with a little volatility, a small gold investment may be a worthy addition to your long-term strategy.
After all, gold has long attracted investors seeking to protect their portfolios against economic risk — and this may be especially true now. “As global uncertainties persist, gold may continue to serve as a valuable portfolio diversification tool,” says Schulman.
The bottom line
If you want to invest in gold, Osborne recommends opting for gold mining stocks or gold ETFs. These gold investments offer the most liquidity. You can also buy physical gold bars, but you’ll want to make sure you have a secure way to store them, and that the cost of storage doesn’t outweigh the benefits of investing.
Be sure to watch out for red flags, which are easy to find in the precious metals market. The Commodity Futures Trading Commission website warns that doomsday pitches and high-pressure sales tactics may be a sign of fraud.
Finally, Schulman emphasizes the importance of making a plan and not reactivating impulsively to fluctuations in the price of gold. “Like with many investments, it helps to have patience, a sturdy constitution, and a solid financial roadmap.”
