Gold’s shiny yellow nuggets have been an essential part of human culture since the beginning of recorded history. Around 3100 B.C., the first Egyptian dynasty regarded this precious metal as the highest medium of exchange. The gold standard once backed the U.S. dollar, and it has long been used by many other economies to back their currencies or as a basis for economic growth.
It’s no longer a primary currency, but gold can be a solid investment for many reasons. Some of these include the rapidly increasing world demand for gold, its safe haven investment properties and its use as an inflation hedge. Here’s what you need to know if you have considered investing in the world’s most precious metal.
A Brief History Of Gold
Of all the precious metals, perhaps none has captured the imagination like gold. It is unique for many reasons, not the least of which being that you can go as far back in recorded history as you want, to almost any ancient culture, and you will find that the ruling class of that culture had an almost insatiable appetite for gold.
Gold has been found adorning the tombs of Egyptian Pharaohs, and legendary tales of how plentiful gold was in the Mali, Aztec and Inca empires have fascinated historians for centuries. In Europe, gold was a favorite of the elites, and that tradition continued all the way through to modern European royalty, almost all of whom wear gold crowns. It’s not a stretch to say that, historically, no treasure was more precious than gold.
In our modern economy, gold coins and gold bullion have been the underlying asset behind paper money for almost as long as paper money has been printed. That’s where the term “treasury” comes from. Considering that, it’s easy to understand why gold has been so popular with investors. But investing is the ultimate “what have you done for me lately?” business. Is gold still a good investment?
Why Is Gold So Valuable?
Gold is valuable for many reasons. The first comes down to supply and demand. Gold is in limited supply, and when it’s gone, it’s gone. According to the United States Geological Survey, about 240,000 metric tons of gold have been discovered in the world. Of that amount, roughly 187,000 metric tons of that gold have already been mined, which leaves around 57,000 metric tons of gold left in existence.
Barring some new discovery of gold somewhere, which is exceedingly unlikely, the world’s gold supply is running out. Anywhere gold is known to exist (mainly in China, Australia, South Africa and the United States), mining operations are underway to extract every last ounce. Complicating matters further, gold mining is labor- and capital-intensive in the extreme. The cost of operating gold mines can easily run into hundreds of millions of dollars per year.
That only serves to make the world’s existing supply of gold bars and gold coins worth even more money. The same principle applies to the gold that has yet to be mined. Additionally, gold has a number of different applications. Although it was popular in the ancient world for its use in jewelry and remains so today, gold also has numerous important industrial applications.
Specifically, gold is an excellent conductor of electricity, which makes it a valuable component in batteries, microchips and superconductors. The two global markets compete with each other to buy a finite resource.
Is Gold A Good Hedge Against Inflation?
Gold can be a good hedge against inflation. It’s proven itself to be a great refuge for investors in the last 100 years. Almost every time the global economy experienced a sharp depression or downturn, investors ran to gold as a hedge.
When the value of the dollar is pushed down by inflation, buying a historically appreciating asset like gold can be a smart bet. In fact, the record shows that when economies and stocks go south, gold is almost always the biggest beneficiary.
Historically a gold investment has proven to be a great hedge against inflation or shrinking economies. Its historical appreciation means that the value of physical gold has gone up much faster than most paper currencies around the world. Even in spite of the downswings in value, gold has shown remarkable resilience and ability to perform for investors independently of what’s happening on Wall Street.
For all of these reasons, buying gold has paid off handsomely for long-term investors. Perhaps that’s why gold is right up there with real estate as one of the most popular alternative investments that you can make.
How Has The Price Of Gold Changed Over Time?
When you combine the rarity of gold with its historical desirability, you have what is a perfect storm for value appreciation. Gold is usually sold by the ounce, and, over the course of the last 100 years, the price of an ounce of gold has increased significantly. Although the long-term trend of gold is generally upward, it’s like any other commodity, which means there have been some peaks and valleys along the way.
In September 1922, gold was selling for $371.95 per ounce. Its value shot up to a high of $779.96 in September 1935 (which was the height of the Great Depression). For the next four decades, America’s economy was in a full boom stage, and the price of gold plummeted to a low of roughly $270 per ounce in October 1971, which was shortly after President Richard Nixon took the U.S. off the gold standard.
As inflation began taking a toll on America’s economy in the late ’70s and early ’80s, the price of gold shot into the stratosphere, hitting an all-time high of nearly $2,500 per ounce in February 1980. When America’s economy began to rebound under the Reagan years, the price of gold hit a downward trend that lasted until the turn of the century, when the tech bubble burst in 2000.
As the stock market went south from what felt like an endless string of dot coms going belly up, investors rediscovered their love for gold, the price began climbing strongly upwards. That trend continued all the way through the great recession of 2008, where it rose almost steadily upwards from $999.67 in October of that year and almost matched its all-time high, closing at nearly $2,300 per ounce in August 2011.
Since then, gold took a slight dip into the $1,500 to $1,600 per ounce range before rebounding strongly during the COVID-19 crisis and topping $2,000 per ounce again. As the world began to normalize after COVID-19, the price of gold gave back some of its gains and today an ounce of gold sells for $1,750.
So, although the ride hasn’t always been upwards, an ounce of gold is worth 500% more today than it was at the same time 100 years ago. That is a significant increase by any stretch of the imagination, especially when you take a moment to consider how many companies that were trading on Wall Street 100 years ago are now completely defunct. This trend explains gold’s popularity as an investment.
In the last hundred years, companies of all kinds have come and gone, bringing numerous boom and bust cycles with them, but gold will probably stay valuable. The 15-year price trend on gold has been positive as well. If you bought stocks at just under $1,000 per share 15 years ago worth $1,750 per share today, it’s safe to assume you’d be happy with a 75% gain.
Ways To Invest In Gold
For all of its pluses as an investment, gold does have logistical drawbacks. First, gold is heavy, so buying it in large quantities and storing it is difficult for most investors. Secondly, gold is a negotiable commodity in any country in the world that can be sold for cash and melted down, making it a desirable candidate for theft.
So, if you’re planning on storing gold bars in your basement, you better have a bank vault down there. Because the sad reality is if people find out you have a large quantity of gold on hand, someone is going to try and take it from you. So, how do you invest in gold if you can’t keep it yourself? The good news is you have lots of options.
- Buying physical gold: You can do this, but you just need to make sure you have a secured storage or vault facility that can store it. These facilities are available (at a cost) in most cities around the country and the globe. Most often, physical gold will be available for purchase in gold bars or gold coin form. When buying gold coins, investors should pay special attention to the percentage of actual gold in the coin’s composition.
- Gold futures: You can buy gold futures from a licensed commodities broker. When you do this, you’re buying certificates backed by gold at today's prices with the expectation that the value of your certificates will increase in the future.
- Gold ETF: A gold exchange-traded fund (ETF) is another way to invest in gold. A gold ETF is not physical gold but rather a security whose value is attached to the price of gold. One interesting aspect of gold ETFs is that investors can use them to bet on the price of gold going up or down. Investors can use it as a hedge against inflation. However, investors who believe the price of gold will fall can even buy an inverse Gold ETF.
- Mining company stocks: Gold mining can certainly be a profitable industry. However, its high operating costs also mean that many gold mining companies are forced to raise capital through stock sales. So, buying stock in gold mining companies is a simple and straightforward way to invest in gold without buying it.
Advantages of Gold Investments
Throughout centuries of change, gold continues to be a popular investment. Here are some reasons why you should consider investing in gold right now:
- Rising demand for gold: The global demand for gold reached an unprecedented high in 2022 to 1,136 tons and although it cooled off slightly in 2023 to 1,081 tons the trend upwards doesn’t seem to be finished just yet. Part of the large increase was from a surge of central banks purchasing gold in recent years.
- Hedge against inflation: Inflation happens when a rise in prices decreases the dollar’s buying power. The weakening of the dollar increases the spot price of gold. During hard times caused by inflation, gold becomes a more sound investment than cash and can act as an inflation hedge.
- Diversification: Risk management is essential in developing a strong investment portfolio. Wise investors add securities with a negative correlation to their portfolios. Securities with a high negative correlation move in opposite directions. With its negative correlation to the stock market and currency values, gold provides a vital way to lower your overall investment risk.
- Liquidity: Cash is king — but gold runs a close second. Owners of gold can convert it to cash all over the planet. Other than actual cash, it has no peers.
- Variety: You can invest in gold bars, bullion, gold collectibles, other collectibles that are plated in gold or made primarily from gold or investments like ETFs that require no storage. Because you have so much variety, you can make the most of your investments and arrange them in the manner that best suits your portfolio.
- Insurance against hard times: Gold tends to hold its value when financial hard times hit, including during geopolitical unrest. During these events, gold prices generally outperform other securities.
Disadvantages of Gold Investments
Before you decide to invest in gold, be aware of its shortcomings. These factors can come in handy when determining the ratio of gold to other investments in your portfolio. Consider these disadvantages:
- High capital gains taxes: Most gold investments have a capital gains tax rate of 28%, higher than the normal rate. The IRS considers gold a collectible. Without considering the tax burden, this factor could make your investment portfolio look more profitable than it really is.
- No passive income: Gold’s only return occurs when the price rises and you decide to sell. It doesn’t generate passive income through interest or dividends.
- Beware of the bubble: Hard economic times cause many people to invest in gold. Panicking investors can cause gold prices to soar to the point of being overpriced. Once the price corrects itself, you can lose a lot of value.
- Poor historical returns: Gold returns historically lag behind stocks and bonds returns. Over 200 years, a stock investor would have earned $5.6 billion from a $10,000 investment in gold. A bond investor would have received $8 million for the same investment. A gold investor would only have earned $26,000. As a standalone investment, gold can be a terrible performer.
Where to Invest in Gold Today
For investors ready to get involved in gold and other precious metals investing, check out Benzinga’s top gold brokers below.
Best for Gold IRAs, New & Experienced Investors: American Hartford Gold Group
American Hartford Gold Group is a family-owned business that offers you access to a wide range of gold and silver coins along with easy setup for Gold IRAs. You could qualify for up to $15,000 in silver or three years of free storage. Using this platform helps you diversify your investments, protect yourself during economic uncertainty and get dedicated gold savings account support from experts.
- Free storage can be a boon for people who have very little cash outside of their investment budget
- Saving with gold can help bolster other savings accounts you already hold
- You will need to do some research to make sure that you qualify for all the perks that are available
Best for Hassle-Free Gold Investment: Bullionz
If you’re planning on real gold investing, you need a partner who can help you make the most of that investment. When you use Bullionz, you can buy into gold-backed tokens that digitize your investment. Plus, you can add physical gold to your digital tokens for a much more holistic portfolio.
This hassle-free platform offers:
- Access for those in regions where gold is not always accessible
- An easy-to-use platform
- Investments that start as low as 1 gram of gold
- Insured and stored gold that is handled for you
- Tokens are backed by real gold products
- Passive rewards options
- You can diversify with gold in a new way
- The platform is much easier to use than others
- Rewards are available, making your investments that much more impactful
- Some investors might want to work with an older platform
Best for Gold IRA and Gold IRA Home Delivery: Red Rock Secured
When you use Red Rock Secured, you find a platform that allows you to convert your current IRA or retirement savings into physical gold and other precious metals.
Gold can be a good investment in your aim to capture its rising value to prepare for the future. Red Rock Secured pays for the shipping required for all gold purchases, helps you diversify your retirement portfolio and offers a 7-day price protection policy.
You can get free one-on-one advice from the Red Rock team, likely qualify (like 90% of their clients) for no fees for life and put your money into an investment that is used by the savviest investors in the market.
- The price protection plan helps you think on your investment to ensure that you’re satisfied
- If you can qualify to pay fewer or no fees, you can keep more money in your pocket or your retirement account
- Not everyone should invest in precious metals, and you should not jump in unless you have spoken to their customer care team
Best for Retirees Wanting Security Against Market Crashes: Lear Capital
When you invest with Lear Capital, the platform allows you to buy a range of gold products, including:
- Gold coins
- International-grade bullion
- Gold IRAs
While gold is an investment as old as time, it is especially helpful when you want to hedge against risk. Lear Capital makes it easy to invest by waiving fees as you invest more money. For example, your first year’s storage fees are waived when you spend $25,000, the second year’s fees are waived at $50,000 and even more of your storage fees are waived when you invest $75,000 or more.
IRA setup is free, and you can reach out to the team for help with investment tips, questions about products and portfolio construction.
- You have multiple options to mix and diversify this section of your portfolio
- You can set up for free so that you can get started and learn how the platform works before moving forward
- The fee waiver threshold may feel a bit high for many new investors
- The platform doesn’t offer many options outside of gold
The Golden Rule
Gold has played a vital role in shaping the global economy throughout history. Along with petroleum, gold is perhaps the single most sought-after commodity in the world. All of these things come together to make gold a good possible investment opportunity. It’s still important to realize however that investing in gold is not necessarily a guarantee of profit.
Gold has certainly appreciated in the last hundred years, but depending on where you were in that cycle, there were still times when your gold investment would have been underwater. However, gold can be a great hedge against inflation, a weak stock market and a weak dollar. Yes, investors the world over have made fortunes by investing in gold.
However, the profitability of your individual gold investment is still subject to the golden rule of investing — timing is everything. When you get in and when you get out matters. If you get in on gold at the right time, history shows you can make a tidy profit on this precious metal.
Frequently Asked Questions
How much gold should I include in my portfolio?
Because gold is an unproductive investment asset, many experts suggest limiting the amount of gold you include in your portfolio. One suggestion is to add gold to no more than 5 to 8% of your portfolio.
Can you make money by investing in gold?
Yes, you can make money investing in gold. Gold is a finite commodity that is highly sought after all over the world. Gold can be used in numerous applications, including jewelry and computer chips. It is also negotiable anywhere in the world. You can trade gold bullion, gold coins or gold bars for liquid currency in any country.
What determines the price of gold?
The price of gold is determined by various factors, including supply and demand, economic conditions, geopolitical events and investor sentiment. Factors such as jewelry and industrial demand, economic conditions, inflation, geopolitical events and gold market speculation influence the demand for and price of gold.
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