Investing in Gold: Is It Still Worthwhile?

Search Fintrev

Search our guides, reviews and glossary.

Investing in gold can make sense, but usually as a supporting holding rather than the core of a portfolio. Gold pays no interest, dividends or rent, so the only return comes from its price rising. What it offers is different behavior: over long stretches of history it has kept purchasing power that paper currencies lost, and in some periods of market stress it has moved independently of stocks and bonds. Whether it is still worthwhile depends on what you want it to do. As a modest hedge against inflation, a weakening dollar or financial turmoil, gold has a long track record. As a way to grow wealth quickly, or as a place to put all your savings, it is a poor fit and carries real risks.

What Gold Does and Does Not Do

A share of stock is a claim on a company’s future profits. A bond pays interest and returns principal at maturity. Rental property produces rent. Gold produces nothing. An ounce bought today will still be an ounce in 20 years, and whether that ounce is worth more depends on what other people will pay for it then.

That has three consequences:

1. There is no compounding from income. Stock investors can reinvest dividends, and bond investors can reinvest coupons. Gold holders cannot, so long-run returns rest entirely on price appreciation.
2. There is an opportunity cost. Money in gold is money not earning interest or dividends elsewhere. When interest rates are high, that cost is larger, which is one reason gold prices often react to changes in rates.
3. Valuation is hard. You can estimate a company’s worth from its earnings and cash flows using fundamental analysis. Gold has no earnings to discount, so its price reflects supply, demand, sentiment, currency moves and central bank buying.

How Gold Became Money, and How It Stopped Being Money

Gold’s reputation as a store of value comes from thousands of years of use. Around 560 B.C.E., merchants began using stamped gold coins whose seal guaranteed weight and purity, which made trade easier than barter or unmarked metal. Gold coinage spread through the Greek and Roman worlds, and in Britain a precious-metals currency developed around 775 A.D., with the pound, shillings and pence tied to quantities of silver or gold.

The U.S. Bimetallic Standard

The United States adopted a bimetallic standard in 1792, defining the dollar in terms of both gold and silver, with one dollar set at 24.75 grains of gold.

The gold standard proper took shape in the 19th century. The U.K. adopted it first, in 1821, and by the late 1800s many countries, including the U.S., Australia, Canada and Germany, had followed. Under a gold standard, a currency could be converted into a fixed amount of gold.

The system broke down in stages:

• 1914: At the outbreak of World War I, many countries suspended convertibility into gold to finance the war.
• 1925: The U.K. returned to gold, and other countries followed.
• 1933: Under the pressure of the Great Depression, when governments wanted room to expand the money supply, the U.S. under President Franklin D. Roosevelt abandoned the gold standard.
• 1934: The Gold Reserve Act gave the U.S. government title to gold coins in circulation and ended the minting of new gold coins.
• 1944: The Bretton Woods Agreement made the U.S. dollar the world’s reserve currency. Other currencies were pegged to the dollar, and the dollar was convertible into gold.
• 1971: President Richard Nixon ended the direct convertibility of the dollar into gold, closing the gold standard era.

No country uses a gold standard today. Most currencies are fiat money, valued by supply and demand in foreign exchange markets or pegged to another currency such as the dollar. Gold’s role shifted from being money to being an asset that people hold alongside money.

Gold’s Role in Today’s Economy

Gold no longer backs any major currency, yet it remains on official balance sheets. Central banks and multilateral institutions such as the International Monetary Fund hold almost one-fifth of the world’s above-ground gold. Several central banks have added to their reserves in recent years, a move often read as caution about the long-term global economy and a desire to hold reserves that do not depend on another country’s currency or policies.

For individual investors, official demand is one of the forces behind gold’s price, and central banks’ continued willingness to hold gold reinforces its status as a reserve asset rather than just an industrial metal or a luxury good.

The Case for Owning Gold

Preserving Wealth Over the Long Term

The strongest argument for gold is historical. Over very long periods it has held purchasing power that fiat currencies lost to inflation.

Consider the early 1970s, when an ounce of gold was officially worth $35. At the time, an ounce of gold or $35 in cash would buy roughly the same things, such as a good suit or a quality bicycle. Decades later, inflation has left the $35 buying a fraction of what it once did, while the ounce of gold, converted at modern prices, has kept far more of its purchasing power.

That comparison has a limit: gold is not the only asset that beat cash since 1971. Stocks, measured by an index such as the S&P 500, also grew far faster than inflation over that span, and they paid dividends along the way. Gold’s case rests less on beating stocks than on holding value through a different set of conditions.

Hedging Against Inflation and a Weaker Dollar

Gold has historically served as a hedge during periods of rising inflation and a falling U.S. dollar. When investors see their cash losing value, some move into hard assets that have traditionally held their worth. The 1970s, a decade of high inflation in the U.S., saw gold prices climb sharply after the dollar’s link to gold ended.

The dollar connection works through pricing. Gold is quoted in U.S. dollars worldwide, so a weaker dollar affects it in two ways:

1. Buyers selling dollars. Large buyers such as central banks that diversify out of dollars must sell dollars to buy gold, which adds pressure on the dollar as they shift reserves.
2. Cheaper gold abroad. When the dollar weakens, an ounce of gold costs less in other currencies. Investors whose currencies have strengthened against the dollar can buy more, which can lift demand.

The hedge also works at the household level in countries with unstable currencies. During Egypt’s financial crisis in 2024, Egyptians turned to gold to protect savings as their currency weakened.

A Safe Haven in Uncertain Times

Political and economic shocks have long pushed investors toward gold. Through collapsing empires, coups and failed currencies, gold has let people protect wealth that would otherwise have been wiped out, and sometimes carry it across borders. More recently, the September 11, 2001 attacks, the Iraq War, the 2007 to 2008 financial crisis, the pandemic and the war in Ukraine all fed demand for financial safety, one of the drivers of gold’s price.

“Safe haven” describes a tendency, not a guarantee. Gold can fall during a crisis, especially when investors sell whatever is liquid to raise cash or meet margin calls. Its record during bear markets is mixed from one episode to the next.

Diversification

Gold’s price is driven by different forces from those that move company earnings or bond yields, so its returns have often moved independently of stocks, bonds and real estate. Adding an asset that does not rise and fall in step with the rest of a portfolio can reduce overall swings, even if that asset is volatile on its own. This is the main reason many portfolio approaches include a small gold allocation rather than a large one: the benefit comes from the different behavior, and a small slice is enough to capture it.

The relationship is not fixed. There have been periods when gold and stocks fell together, so diversification reduces risk on average rather than removing it in any particular year.

The Risks of Investing in Gold

• Price volatility. Gold can move sharply over short periods. It has also gone through long stretches where its price fell or went sideways for years, which can be painful for anyone who bought near a peak.
• No guaranteed inflation hedge. Gold has protected purchasing power over long periods, but there is no rule that it rises in step with inflation in any given year or decade.
• No income. Every year you hold gold, you forgo interest or dividends you could have earned elsewhere. That cost grows when interest rates are high.
• Political and policy shocks. Wars, elections and changes in government or central bank policy can move gold in either direction.
• Storage and insurance costs. Physical gold has to be stored securely and insured against theft or loss. Safe deposit boxes, home safes and vault services all cost money, and the costs recur.
• Buy and sell spreads. Dealers sell physical gold above the spot price and buy it back below. A hypothetical example: if a dealer sells a bar at 4% above spot and buys it back at 3% below, the price has to rise about 7% before you break even on a round trip. Coins and small bars often carry higher percentage premiums than large bars.
• Tax treatment. In the U.S., physical gold and many physically backed gold ETFs are taxed as collectibles, with a maximum long-term capital gains rate of 28%, higher than the top rate on long-held stocks.
• Fraud. The gold market attracts high-pressure sellers.

What happens if you put all your money in gold? Every risk above applies to your entire net worth at once. You would have no income from your savings, full exposure to gold’s swings, and no other assets to offset a long decline. Concentration removes the diversification benefit that is gold’s strongest argument.

Ways to Invest in Gold

Physical Gold: Bars vs. Coins

Physical bullion appeals to people who want an asset outside the financial system. Bars typically carry lower premiums per ounce, especially in larger sizes, while coins are easier to sell in small amounts and are widely recognized. Buying bars in grams lets you start small, but small units usually cost more per ounce, so the price has further to climb before you profit.

Are gold bars worth it 10 years from now? No one can know what gold will be worth in a decade. A long horizon does help with physical gold because it spreads the round-trip dealer spread and any one-time costs over more years. It does not help with recurring storage and insurance costs, which accumulate the longer you hold.

Gold ETFs and Mutual Funds

Physically backed gold ETFs hold bullion in vaults and aim to track the gold price, minus an expense ratio. Other funds hold shares of mining companies instead. Funds trade like stocks, can be sold quickly during market hours and remove the storage problem. The trade-off is that you own fund shares, not metal you can hold. For many investors, a fund is the simplest way to get a small gold allocation inside a brokerage or retirement account.

Gold Mining Stocks and Dividends

Mining stocks tend to rise and fall with gold, often by more. The reason is operating leverage. Hypothetical example: if a miner’s all-in cost to produce an ounce is $1,000 and gold sells for $1,500, its margin is $500. A 10% rise in gold to $1,650 lifts the margin to $650, a 30% increase in profit per ounce. The same leverage works in reverse when gold falls.

Gold stocks generally suit growth investors more than income investors, but some miners pay meaningful dividends. When judging whether a dividend is sustainable, look at the company’s dividend history, its payout ratio, its debt load and its cash flow over a full cycle. Mining companies borrow and spend heavily during expansion phases, so a single year’s figures can mislead. Well-run miners can stay profitable when gold prices fall, while highly indebted ones may cut dividends first.

Miners also carry risks that bullion does not: operational problems, cost overruns, political risk in mining jurisdictions and management decisions.

Futures and Options

Gold futures are contracts to buy or sell a set amount of gold at a future date and price. Options give the right, but not the obligation, to do so. Producers, jewelers and institutions use them to hedge, and traders use them to speculate. Because futures are traded on margin, a small price move can produce large gains or losses relative to the cash put up. They suit experienced traders who understand derivatives, not savers looking for stability.

Jewelry

Jewelry carries retail markups for design and craftsmanship, and when resold it is often valued mainly for its metal, so the markup is largely lost. It can be a reasonable choice if you value the object itself, but it is a weaker investment than bullion bought close to spot.

Gold Savings Plans

Gold-based savings plans, offered by some banks and financial institutions, let you buy gold in small amounts at regular intervals. The institution stores the accumulated gold, and at maturity or on request you can redeem the holding in physical gold or cash. These plans reduce the hassle of buying and storing small quantities. Before joining one, check the fees, the spread on purchases and redemptions, and who actually holds the metal.

Gold Certificates

A gold certificate documents your ownership of a specific amount of gold held by the issuer, usually a bank. It lets you benefit from gold’s price moves without handling the metal. The certificate is only as sound as the issuer, so you take on the risk that the institution cannot deliver, which is a risk physical bullion in your possession does not carry.

How Much Gold, and When?

Sizing the Position

Because gold’s main contribution is diversification, many investors keep it to a small percentage of their portfolio. A hypothetical example shows why sizing matters: in a $100,000 portfolio with 5% in gold ($5,000), a 30% drop in the gold price costs $1,500, or 1.5% of the total. With 50% in gold, the same drop costs $15,000, or 15% of the total.

A small allocation, such as 2% of net worth, will not transform a portfolio’s results, but it can add a hedge without much opportunity cost. Whether that slice should be 2%, 5% or 10% depends on your other assets, your income stability and your tolerance for watching a non-earning asset swing in price.

Lump Sum or Gradual Buying

Putting your entire gold allocation in at once ties your result to the price on one day. Buying in fixed amounts over months (dollar-cost averaging) spreads purchases across different prices. Averaging does not guarantee a better outcome, but it reduces the chance of committing everything right before a decline. For physical gold, frequent small purchases can raise costs, because small units carry higher premiums.

Is Gold Necessary for Young Investors?

Gold is not required at any age. A young investor with decades ahead usually depends on growth assets, and income-producing investments like stocks benefit from long compounding, which gold cannot provide. A small gold position can still make sense for a young investor who wants a hedge, but it should not crowd out retirement contributions or an emergency fund.

Can You Profit From Gold in Weeks?

Gold can move a lot in a few weeks, but that makes it a speculative trade over that horizon, not an investment. Short-term trading in gold through leveraged products like futures or CFDs can produce losses as quickly as gains, and physical gold’s dealer spread makes quick round trips especially costly.

Gold Compared With Other Assets

Gold vs. Silver

Both metals draw investors during economic uncertainty. Gold’s total market value is much larger, it has fewer industrial uses, and it tends to be less volatile. Silver’s heavier industrial demand ties it more closely to the business cycle, which can mean sharper swings. Some investors hold both to balance a precious metals allocation.

Gold vs. Bitcoin

Gold suits investors seeking a relatively stable store of value and a hedge against economic instability, backed by thousands of years of use. Bitcoin appeals to those willing to accept much larger price swings for the chance of high returns and who believe cryptocurrencies will play a lasting role in finance. Bitcoin’s history is measured in years, not centuries, and it is intangible. Some investors hold small amounts of both.

Gold vs. the U.S. Dollar

Holding dollars in cash loses purchasing power to inflation over time, as the $35 example shows, while gold has historically kept more of it. But cash in an interest-bearing account earns a return and does not swing in value, and you need it for spending and emergencies. Gold competes with cash as a long-term store of value, not as a spending reserve.

Watching for Gold Scams

Gold’s image as a safe, timeless asset makes it a favorite of aggressive marketers. The Commodity Futures Trading Commission published a warning titled “Gold Is No Safe Investment,” and the CFTC, the Federal Trade Commission and other regulators have reported significant increases in gold-related fraud. Many schemes rely on claims that gold is a risk-free store of value.

Red flags include:

• Promises of guaranteed returns or that gold “can’t lose.”
• Pressure to act immediately, often tied to warnings of imminent economic collapse.
• Pressure to move retirement savings into gold through a specific company.
• Coins sold as rare or collectible at prices far above their metal content.
• Storage arrangements where you never see or verify the metal you paid for.

Gold ETFs and mining stocks bought through a regulated brokerage avoid many of these problems. If you buy physical gold, compare the dealer’s selling price with the spot price, ask what it will pay to buy the same item back, and be skeptical of any seller who discourages questions.

The Bottom Line

Gold suits investors who want a modest hedge against inflation, a weaker dollar or financial turmoil, and who accept that it earns no income. A small slice of a portfolio captures most of its diversification benefit, while a large concentration exposes savings to its swings with nothing to offset a long decline. Funds bought through a regulated brokerage avoid storage costs and many scams, and buyers of physical gold should compare dealer prices against spot.