Gold Fashioned: Is Gold Still a Good Investment?

Gold Fashioned: Is Gold Still a Good Investment?

Gold is the closest thing we have to sound money. It may still be an effective store of value, but is gold a good investment today?

Gold Fashioned: Is Gold Still a Good Investment?
Guy Ovadia

Published Mar 22, 2022Updated Mar 22, 2022

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Gold

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While most portfolios are optimized for growth and returns, every genre of investor considers investing in gold at one point or another.

There are various outlooks on gold as an asset: Some see it as sound currency and a superior store of value, while others see it as a luxury commodity to make jewelry and technology. There are also investors who are skeptical about gold as an investment due to its impracticality and limited utility. 

Despite gold being a decent store of value and a sought-after commodity, investors must consider the broader economic context before making a gold investment.

So, is investing in gold a good idea? While the answer might be yes, gold investments are only effective if they're part of a structured investment plan that's designed to meet your goals as an investor.

What is a gold investment?

While investing in gold as a physical asset is an option for many investors, not all investors have access to investment grade gold or can afford the significant overhead of storage, maintenance, insurance, and any other required administrative and legal tasks. While anyone can hypothetically buy gold bullion and purchase a safe to store it in, the best ways to gain exposure to gold are through gold stocks and gold exchange-traded funds (ETFs).

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Gold stocks

Gold stocks refer to companies that deal with gold as a commodity. The best gold stocks are gold mining companies or other precious metals companies with significant involvement in the gold supply chain. 

Other gold stocks include companies exploring gold deposits to exploit, gold refinement companies, gold jewelry companies, or any company exposed to gold as a commodity. While gold stocks can be a good investment, the price of gold stocks is less correlated with the spot price of gold since gold is not the underlying asset.

Gold ETFs

Investors who want to gain exposure to gold as an asset without having to deal with it physically can do so by buying shares of a gold exchange-traded fund (ETF). Gold ETFs are managed funds where gold is the underlying asset, which means that each share of a gold ETF is a security that represents the value of gold minus the cost of storing it somewhere else. 

Gold ETFs are one of the most convenient ways for investors to gain exposure to gold as an underlying asset because all the extraneous costs of gold investing are already priced in.

Is investing in gold a good idea?

Generally speaking, having something in common with the balance sheet of central banks is a good idea. While the importance of gold has waned in the global economy, gold is still used as a crucial store of value by institutions like the Federal Reserve and the International Monetary Fund (IMF).

Additionally, gold is typically uncorrelated with stocks and serves as a hedge against inflation of fiat currencies like the U.S. dollar. Despite gold being a decent store of value and a sought-after commodity, investors must consider the broader economic context before making a gold investment.

Advantages of investing in gold

  • Time-tested store of value
  • Rising demand leads to price appreciation
  • Easier than ever with new gold investment platforms

The main advantage of gold is that it's a scarce and sought-after luxury commodity, and gold investments have withstood the test of time as the best store of value. The gold market is saturated with gold derivatives, and alternative investing platforms are making investing in gold as a commodity quicker and more accessible than ever. 

With record-breaking inflation of the U.S. dollar by the federal reserve in 2021, demand for other reserve assets like gold is rising and, consequently, the value of gold is appreciating.

Disadvantages of investing in gold

  • Historical returns are low
  • Additional costs like storage, insurance, and capital gains taxes on collectibles
  • Gold prices may fall with rising interest rates

The reverse side of inflation is the interest rate hikes being instituted by the federal reserve. As the interest rate of borrowing the U.S. dollar goes up, less money gets borrowed by entities that need large loans. This results in companies liquidating assets like gold in order to raise their cash supply while avoiding borrowing and having to pay interest altogether. As the federal reserve continues to hike interest rates, more companies that hold precious metals in their portfolios may be inclined to sell their gold, thus driving down market prices for gold. 

And while gold may provide a relatively stable store of value, don't expect it to provide you with impressive growth. Historical returns are modest, and on top of that, costs associated with gold investments—such as storage, insurance, and a typically higher tax rate on earnings—can eat into those returns. Finally, gold may be subject to technological disruption as Bitcoin and other cryptocurrencies with built-in digital scarcity challenge gold as one of the main reserve assets.

When should I invest in gold?

Investors must stay up to date with macroeconomic trends—especially the impact of Federal Reserve actions like inflation and interest rates—in order to get the most out of their gold investment.

Historically, the market price of gold trends upward during the year, with prices in the first quarter often being lower than in the fourth quarter. Gold investing is like almost every other investment in that the conventional wisdom of 'buy low, sell high' still applies, so that's the golden rule (no pun intended) investors should follow.

Although there isn't necessarily a best time to invest in gold, since that depends on the goals of the investor, there are opportunities when certain economic conditions arise that can be optimal to get into a long-term gold investment. Anything from government action or the passage of a certain law, to a geopolitical conflict or even a domestic economic crisis, can impact gold prices.  While events that cause uncertainty generally make prices go up, it can sometimes be impossible to time the market because there's usually no frame of reference that can help predict such events or inform how they will impact the price of gold.

How should I invest in gold?

Gold is great to have as part of a diversified portfolio, but choosing how to invest in gold really depends on your investing style. For the hands-off retail investor, gold ETFs are a great way to gain exposure to gold as an asset. Buying shares in a gold mining company that pays dividends could also be worthwhile. Buying physical gold is always an option: Gold bullion is the best for storing value, but a well-made piece of gold jewelry could make returns on the secondary market. 

Finally, the easiest and most convenient way to invest directly in gold is with an alternative investing platform like Vaulted or OneGold that will take care of things like storage and insurance for you.

OneGold is a precious metals investing platform where users sign up to buy and sell digital assets backed 100% by gold stored by OneGold's vaulting partners. All of OneGold's assets are insured, which gives investors peace of mind as they instantly buy and sell gold and other precious metals. If gold investing is part of your retirement strategy, consider investing in gold through a self-directed IRA with OneGold.

onegold
OneGold

Gold

Another alternative investing platform you can use to buy and sell gold is Vaulted. Vaulted lets investors buy fractional pieces of pure gold bullions stored in the Royal Canadian Mint. For a small fee, Investors can buy gold through vaulted and are assigned a serial number correlated to their gold which they can sell on Vaulted's marketplace when the price goes up. Vaulted is the most convenient way to invest directly in gold because investors can request to have their gold shipped to them whenever they want.

vaulted
Vaulted

Gold

All that is gold does not glitter, not all those who wander are lost; the old that is strong does not wither, deep roots are not reached by the frost.

Investing in gold is a catch-all since there are so many ways to gain exposure to gold. On one hand, gold is a commodity that is used for things like luxury jewelry and innovative technology. On the other hand, gold is a store of value and an effective long-term reserve asset. Do you consider gold an asset or commodity?

All that is gold does not glitter, not all those who wander are lost; the old that is strong does not wither, deep roots are not reached by the frost.

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