Gold has long been seen as a safe-haven investment, prized for its ability to hold value when markets fluctuate or inflation rises. Many investors turn to precious metals to protect their wealth during economic uncertainty, but gold isn’t without risk. Its price can swing sharply, and it doesn’t generate passive income like stocks and bonds.

This guide breaks down the benefits and disadvantages of investing in gold, including different buying methods, potential drawbacks, and how it can fit into a diversified investment portfolio.

Different Ways to Invest in Gold

There are numerous ways to invest in gold, each with its own benefits, drawbacks, and considerations. Here are the most common investment options.

Physical Gold

Buying physical gold, such as coins, gold bars, or jewelry, gives investors direct ownership of a tangible asset with no counterparty risk. However, it also comes with practical drawbacks.

You’ll need to consider storage and security costs and take precautions to verify the gold’s authenticity and purity before buying or selling.

Gold ETFs and Mutual Funds

Gold ETFs and mutual funds track the price of gold without requiring physical ownership. They trade like stocks, offering high liquidity and easy access, but you’ll still pay management fees and don’t actually own physical gold.

Gold Mining Stocks and Funds

Investing in gold mining stocks or funds means buying shares of companies that mine or refine gold. These investments move with the price of gold but are also influenced by company performance, production costs, and global demand. They can offer higher return potential but carry greater volatility and stock market risk.

Gold IRAs (Including Self-Directed IRAs)

A gold IRA allows investors to hold physical gold or gold-backed assets in a tax-advantaged retirement account. Through a self-directed IRA, you can diversify beyond traditional stocks and bonds while maintaining control over your investment strategy.

Note: The IRS requires that gold meet specific purity standards and be stored in an approved depository, which can add custodial and storage fees.

Pros of Gold Investing

Gold is considered a safe investment with the potential for steady, long-term returns. Investors who choose to add gold to their portfolio can benefit from:

• Hedge against inflation. Gold often rises when inflation increases, helping preserve your purchasing power.
• Portfolio diversification. Gold’s performance tends to differ from stocks and bonds, helping balance risk during volatility.
• Liquidity and market demand. Gold is highly liquid. You can buy or sell it easily through dealers, exchanges, or ETFs.
• Global recognition and stability. Gold is valued worldwide and independent of central banks or digital systems.

Cons of Gold Investing

Despite numerous benefits, there are a few drawbacks of investing in gold to be aware of including:

• No passive income or dividends. Gold doesn’t generate interest, dividends, or cash flow. Its value relies solely on price changes.
• Storage and security costs for physical gold. Physical gold requires secure storage, which adds ongoing expenses.
• Price volatility. Gold prices fluctuate with market sentiment, central bank policy, and global events.

Gold’s Historical Performance Compared to Other Investments

Gold’s long-term track record shows why it’s considered a store of value, but not necessarily a high-growth asset. Over the past two decades, it has delivered steady but moderate returns compared with stocks and other investments.

According to analysis from Kiplinger, gold generated an annualized return of 8.4% from 2004 to 2024, or 5.6% after inflation.

In that same period, the S&P 500 returned 10.6% annualized (7.8% inflation-adjusted), despite enduring two major downturns—the tech crash and the 2008 financial crisis. Benchmark Treasury notes lagged far behind with a 2.4% annualized return (-0.2% after inflation).

Looking at the bigger picture, data from Visual Capitalist and NYU Stern shows that a $100 investment in 1970 would have grown to about $5,545 in gold by 2023.

That same $100 invested in the S&P 500 (including dividends) would now be worth roughly $22,419, making equities the clear long-term growth leader. Corporate bonds would have reached $7,775, and real estate about $1,542 over the same period.

Alternative Metal Investments

Gold isn’t the only precious metal that attracts investors seeking stability. Consider adding these precious metals to your portfolio for diversification and additional growth opportunities.

• Silver. Often moves with gold but has greater industrial use, which can boost demand.
• Platinum and palladium. Used in manufacturing and clean-energy technology; their prices are tied to global production trends.

Adding metals beyond gold can further diversify your investment portfolio, though each carries unique risks and liquidity levels.

Recent growth in gold markets has made gold and other precious metals more attractive to investors. Understanding how to invest in gold and using tax advantages like an IRA to your advantage can increase your long-term gains and better protect your portfolio against inflation.

FAQs

Does gold pay dividends or generate income?

No. Gold is a non-income-producing asset, meaning its value depends solely on price changes. Investors earn only through appreciation when the price of gold rises.

How does gold protect against inflation?

Gold maintains value during inflationary periods because it’s not tied to any currency. When the dollar weakens, gold prices often rise, preserving real purchasing power.

Should I include gold in a retirement account like a Self-Directed IRA?

Yes, if you want to diversify. A Self-Directed IRA allows you to hold gold alongside traditional assets. However, make sure the metal meets IRS purity standards and is stored in an approved depository.