Pros and Cons of Investing in Gold

As of late October 2025, gold has surged about 50% year-to-date, putting it on track for its strongest annual performance since the oil crisis of 1979. Its price exceeded all-time highs, peaking at around $4,300 an ounce before prices quickly retreated to a per ounce price closer to $4,000.

Gold has been a store of value for thousands of years, prized not only for its beauty and rarity but also for its ability to hold purchasing power when currencies, governments, or markets falter. Even today, it remains one of the most widely held alternative assets.

Most use gold as a hedge against inflation, a diversifier in turbulent times, and sometimes as a “fear trade” when confidence in the financial system wanes.

But does gold belong in your portfolio? As an investment, gold has unique pros and cons to consider before making it a part of your asset allocation.

The Pros of Investing in Gold

Portfolio Diversification

Gold often moves independently of stocks and bonds. When equities fall or investors flee risk assets, gold frequently gains, especially when faith in institutions falters. This year, geopolitical and currency concerns have driven up the price of gold even as other financial assets have performed well.

Tangible and Universal

Unlike digital assets or corporate shares, gold is physical and universally recognized. It is accepted across borders, carries no default risk, and is not tied to any single government or institution , qualities that make it especially appealing in times of uncertainty.

Central-Bank Support

Global central banks are a key source of demand for gold, buying more than 1,000 tons annually. As central banks' desire for more politically neutral reserves grows, so does the demand for gold.

Variety of Investment Options

Investors can own gold directly (bars, coins, jewelry) or indirectly through ETFs, mining-stock funds, or gold-linked futures contracts.

Inflation Hedge

While gold's biggest benefit is often considered hedging against inflation, its actual performance against inflation is mixed. A true inflation hedge should respond positively to inflation. During certain periods, especially the seventies and early eighties, gold's price moved higher in step with inflation. During other periods, like 1987 to 2001, gold's value dropped as inflation remained steady at 3%. Even during 2022, our most recent inflation spike, gold initially jumped in value, just to flatten out by the end of the year. Since gold's price does not consistently increase with higher prices, many are starting to reimagine its role in portfolios to be more of a strategic signal than a hedge.

The Cons of Investing in Gold

No Income or Dividends

There are two components to investment return: the interest and dividends, and the change in market price. Imagine an apartment building: you make money from the rent (the interest and dividends) and by selling the building for more than you paid (the price appreciation). It's the same with most investments, but gold doesn’t pay interest or dividends. That means all the return on gold comes from the increase or decrease in its market price, which makes it generally more volatile. Interest and dividends tend to be the more reliable source of return when markets are down, in part because even in downturns, companies are reticent to cutting their dividends.

Volatility and Timing Risk

Although considered “safe,” gold prices can swing sharply based on investor sentiment, central-bank policy, and currency movements. In some periods, like much of the 1980s and 1990s, gold lagged stocks and bonds for years, resulting in just a 1.5% annualized return adjusted for inflation between 1984 and 2024.

Storage and Costs

Physical gold requires secure storage and insurance, which can add 0.5 to 1% per year in costs. ETFs are more convenient but charge small annual management fees and don’t provide the satisfaction of tangible ownership.

Currency and Opportunity Risk

If the U.S. dollar strengthens or inflation cools, gold prices can stagnate. Meanwhile, capital invested in gold isn’t earning income elsewhere, so the “opportunity cost” can be high during long flat periods.

How to Think About Gold

For most investors, gold is best viewed as a risk-management tool, not a growth engine. It is most

effective at hedging against currency shocks and equity-market downturns.

Those seeking convenience might choose ETFs or mutual funds, while those who value privacy or tangibility might prefer physical coins or bars from reputable dealers.

Bottom Line

Gold’s appeal lies in its reliability when other assets wobble. It can’t be printed, hacked, or defaulted upon. But it’s not a magic bullet: gold’s price can stagnate for years, and it doesn’t generate income. Its price is unstable during periods of crisis and can be quite volatile in the short term; however, it might be at least a temporary safe haven in a volatile markets.

As the role of gold evolves, there remain questions about its place in portfolios. In any case, it’s wise to treat gold as a complement to, and not a replacement for, diversified stock, bond, and cash holdings.