Why Invest in Gold

By Kirsteen Mackay


Learn why investing in gold is a good hedge in times of uncertainty, and why gold can help diversify your portfolio and guard against inflationary headwinds.

Why Invest in Gold

Gold offers a practical way for investors to balance their portfolios and protect against inflationary headwinds.

According to the World Gold Council, gold has proved its value during multiple economic recessions, delivering positive returns in five of the last seven recessions since 1973, including the 2008 global financial crash and the COVID-19 pandemic of 2020.

Historic Store of Value

Gold has been a store of value for centuries, and it continues to play an important role in the financial world. Indeed, the yellow metal has been used as a store of value for thousands of years due to its scarcity, durability, and universal recognition as a valuable commodity.

Throughout history, gold has maintained its purchasing power, even during times of economic instability or currency devaluation. This makes gold an attractive investment for those who are looking for a way to preserve and grow their wealth over the long term.

Investing in gold is all about getting a piece of the action in this precious metal. Whether you're buying physical gold, like coins or bars, or going for gold-backed investments like ETFs or mining stocks, the goal is the same - to make some cash.

People love investing in gold because it's seen as a safe haven - it has a history of holding its value even when everything else is falling apart. Plus, it's a globally recognized commodity, so you don't have to worry about it losing value just because you're in a different part of the world.

But it's not all sunshine and rainbows with gold investing. The price of gold can be affected by a bunch of different things, like changes in demand, supply, and the economy. So, make sure you know what you're getting into before diving in headfirst. Think about your goals, how much risk you're willing to take on, and come up with a solid investment plan.

Key Benefits of Investing in Gold

  • Diversification: Holding gold in your investment portfolio can help to diversify your exposure and reduce risk in times of uncertainty.

  • Hedge against inflation: Gold is a hedge against inflation, so its value usually increases as the cost of living goes up.

  • Safe haven asset: Gold is considered a safe haven asset, providing stability and security when economic uncertainty is rife.

  • Liquidity: Gold is an extremely liquid asset, meaning it can be traded and turned into cash quickly and easily. This makes gold a reliable and secure investment, particularly during times of economic instability. Furthermore, its international recognition and acceptance as a currency further validate its liquidity. As a result, gold has been a popular investment option for hundreds of years.

  • Long-term growth potential: Despite its relatively stable value, gold has the potential for long-term growth, making it a smart addition to any portfolio.

  • Historical performance: Historically, gold has maintained its value over time and has often performed well during times of economic uncertainty and market volatility. Gold has been a source of positive returns during five of the last seven economic recessions since 1973.

How to Invest in Gold:

There are multiple ways to get exposure to gold:

  • Physical gold: You can invest in physical gold, such as gold bars or coins, and store it in a secure location.

  • Gold ETFs: Exchange-traded funds (ETFs) that invest in gold are a convenient and accessible option for those looking to invest in gold.

  • Gold mining stocks: Investing in gold exploration and mining stocks allows you to benefit from the growth and success of the company, as well as the value of the gold they mine.

  • Gold mutual funds: Similar to ETFs, mutual funds that invest in gold offer a convenient and accessible way to invest in gold.

Factors to Consider When Investing in Gold

  • Investment Goals: What is your investing aim? Do you want to grow your wealth slowly and steadily over a long time horizon, or do you want to generate quick gains? Knowing your goals will help you decide what type of gold investment suits you.

  • Risk Tolerance: Are you a risk taker seeking big rewards or a conservative investor looking to protect your investment? It’s good to know your risk tolerance. For instance, a gold ETF is a less risky investment than shares in a gold exploration company.

  • Financial Situation: Do you know your investing budget? Know what you can afford. An investment in physical gold typically requires a larger budget than a gold ETF or shares in mining stocks.

  • Market Conditions: Know your market. Keep an eye on what’s happening geopolitically, across the economy, with interest rates and political stability. Analyzing market trends can help you understand if the price of gold is likely to rise or fall. Generally, a stable economy is bearish for gold, while uncertainty is good for gold.

  • Expert Advice: Working with a financial advisor or conducting research on your own can help you stay informed about the latest developments in the gold market. The professionals have the experience, knowledge, and tools to help you make informed investment decisions based on your individual goals and risk tolerance.

Advantages and Disadvantages of Investing in Gold

As with any investment, there are advantages and disadvantages to investing in gold. Some of the advantages include:

  • Diversification: Investing in gold helps to diversify your portfolio, reducing the risk of loss in other investments.

  • Long-term stability: Gold has a long history of stability, making it a smart investment for the long term.

  • Protection against inflation: Gold can protect your wealth against inflation, as its value often increases as the cost of living goes up.

However, there are also some disadvantages to consider, including:

  • Volatility: Although gold is generally considered a stable asset class to own, its value can be impacted by economic and political events, causing short-term market volatility.

  • Storage and insurance costs: If you invest in physical gold. such as bullion bars and gold coins, you may need to consider the cost of storing and insuring your gold.

  • No yield: Unlike other investments, such as stocks and bonds, gold does not generate a yield or income.

  • Supply and demand: Demand for gold can push the price up, while a drop in demand does the opposite. A supply glut can lead to lower prices, while supply constraints can push the price up.

Gold Investing FAQs:

Is gold a good investment?

Gold is considered a good investment due to its stability, liquidity, and potential for long-term growth. It is also a safe haven asset, providing security during economic uncertainty.

How does investing in gold diversify my portfolio?

By investing in gold, you can reduce the risk of loss in other investments and increase the overall diversity of your portfolio.

Is it better to invest in physical gold, gold stocks, or gold ETFs?

The best investment option will depend on your individual circumstances and financial goals.

What Next?

There are many reasons to invest in gold, and retail investors often opt to allocate a percentage of their portfolio to the yellow metal for the reasons mentioned above.

Why not continue your investing education journey with some of our other informative articles:

How to Find Investment Opportunities

How to Read Financial Statements

How to Read a Balance Sheet

How to Read a Cash Flow Statement

How to Read an Income Statement


In this article:



Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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