Is Now The Perfect Time To Invest in Gold? Here’s What You Need To Know

Gold is having a moment.

An ounce of bullion currently hovers around $2,800—near all-time highs and up by roughly $1,000 over the past three years. Meanwhile SPDR Gold Shares (GLD), a popular gold ETF, is up 38% in 2024, or about 18 points better than the stock market.

The dramatic rise went into overdrive in early 2024 as investors started to believe the Federal Reserve would cut interest rates. At the same time, demand for gold soared in central banks across the globe, but especially in China.

If you missed out on the recent rise, you might feel inclined to catch whatever is left of the golden wave. But chasing animal spirits, even for an asset as old as gold, is unlikely to be the best use of your hard-earned cash.

Gold Rush

There are a few drivers of the year-plus rise in gold prices, including demand from central banks worldwide.

China was the world’s largest purchaser of gold in 2023, for instance, adding to its reserves for 18 consecutive months until early in 2024.

Some central banks—especially those in countries that are not allies of the U.S.—view gold as an alternative to the U.S. dollar that diversifies their asset reserves and makes them less hamstrung by American sanctions.

Read more: A Guide To Investing In Gold

Central bank gold demand soared in 2022 and 2023, a period during which Russia invaded Ukraine before it was removed from the Society for Worldwide Interbank Financial Telecommunications (SWIFT) banking system.

And the party is still rolling: Central bank gold purchases saw their highest levels for the first three months of a year in 2024, according to the World Gold Council.

At the same time, some consumers are looking to gold as the Federal Reserve cuts interest rates.

The U.S. central bank lowered short-term borrowing costs by 50 basis points. According to the CME Group’s FedWatch tool, we can expect another 50 basis points reduction by the end of the year.

These rate cuts make gold more appealing to investors since they’ll earn less yield on bonds in a low-rate environment.

“Rate cuts by the Fed will likely bring Western investors back into the gold market after largely being absent during the metal’s sharp rally over the past two years,” according to a September 2024 Goldman Sachs research note.

Gold Demand in Uncertain Times

Another reason for the increased demand for gold over the past few years is the general sense of instability around the globe.

The Russian/Ukrainian war is still ongoing (with North Korea reportedly entering the fray), while the Israel/Hamas war has grown to include strikes in Lebanon and Iran. Meanwhile, concerns are growing that China will invade Taiwan, the home of one of the world’s biggest semiconductor manufacturers, thereby stoking a regional conflict.

And that’s just war and peace.

Read more: How To Buy Gold

Economically, both U.S. presidential candidates are threatening tariffs, the U.S. debt burden is growing ever more pressing and the Federal Reserve is cutting interest rates at a time when inflation (albeit down from 2022 levels) is still higher than the central bank’s 2% target.

Gold tends to perform well in times of great uncertainty.

In March 2007, an ounce of gold cost $648.44. A year later, as once high-flying investment bank Bear Stearns was in the process of dying, the price jumped 46% to $948.10.

Or take the late summer of 2011, when credit agency S&P downgraded the U.S. debt rating following months of high-stakes budget negotiations between then-President Barack Obama and congressional Republicans.

“[T]he downgrade reflects our view that the effectiveness, stability and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges,” S&P said at the time.

Gold responded by jumping 49% in September 2011 over the previous 12 months.

Likewise, gold demand jumped during the coronavirus pandemic as economies shut down.

When events go sideways, many investors rush toward gold.

Is Gold A Good Investment?

The problem for goldbugs, though, is that events don’t always go sideways.

Gold investors, for instance, endured something close to a lost decade following the heady days of 2011. The price fell for years afterward and only established a new all-time high in August 2020.

This uncertainty stems from the fact that gold doesn’t have any intrinsic value; it’s purely a speculative gamble.

Whereas stock ownership is a bet on the future cash flows of a particular company (or index of companies) and bondholders receive a coupon in addition to the return of their principal, gold investors are counting on someone else wanting gold in the future to feel safe.

That’s why some of the biggest names in personal finance, from Vanguard founder Jack Bogle to Dave Ramsey, have advised against investing in it.

Of course, the trends that propelled gold’s current rise could continue. Goldman Sachs, for instance, expects central banks to continue adding to their reserves in light of the geopolitical landscape and the general debt burden faced by the U.S.

Moreover, a showdown in Washington following the 2024 election could lead to more instability, especially if one party holds the White House and another has at least one house of Congress.

If you want to put a relatively small portion of your portfolio (say, 5%) into gold, you won’t upend your retirement plans. SPDR Gold Shares (GLD), after all, has delivered an average annual return of 7.9% over the past decade.

Should you decide to take a bet on gold, opt for a low-fee gold ETF like SPDR Gold Shares.

A higher allocation than that, though, and you’re taking too big a risk. Not only do you not know where investor sentiment will go in the years ahead, but you can get better returns elsewhere. The S&P 500 consistently outperforms gold (stocks are up 11.40% over the last 10 years) and offers relatively predictable returns over the long haul.

Don’t fall in love with the shiny object even if it’s a little brighter right now.