Is gold a good investment? Benefits, drawbacks and how to decide if it deserves your dollars

Gold has earned its reputation as both a luxury and an investment, with a history stretching back thousands of years. As a part of your investment portfolio, gold can act as a hedge that balances economic uncertainty and high inflation. The precious metal also works well as a storage of value since its supply is limited, protecting it from currency devaluations that typically follow printing them in large quantities.

However, it also comes with significant drawbacks including performance volatility, potential higher taxes, storage costs and lack of income generation. On top of that, your gold investment may come with high trading or account fees depending on the platform you use.

Let’s explore whether gold deserves a place in your investment strategy by looking at its advantages, limitations, and how it compares to other investment options.

In this article

Is gold a good investment?

When you think about investing in gold, you might picture gold bars in a vault or maybe those TV commercials promising safety in uncertain times. But beyond the marketing, how does gold actually perform as an investment?

Think of gold like insurance for your portfolio rather than a growth engine. It pays no dividends or cash flow, so you can only make money when its price rises. But when markets get scary and stocks tumble, gold often holds steady or even climbs higher. That’s its superpower.

The golden track record

Gold typically performs well during periods of economic turbulence, geopolitical tension and high inflation. Its limited supply and universal recognition give it staying power that fiat currencies often lack.

That’s why gold is at record highs right now, reaching well over $3,000 in 2025. “Historically, gold has performed well during uncertain times and I think most people would agree, these are uncertain times,” says John Bell, certified financial planner (CFP) and owner of Free State Financial Planning in Highland, Maryland.

Looking at gold’s history shows it delivered impressive returns during specific periods. In the three years after the 2008 financial crisis, gold climbed by more than 70% while stocks plummeted before seeing moderate recovery, finishing the same period with a 10% gain.

But here’s where it gets interesting — those gold returns haven’t been steady. Gold prices often stay flat or decline for long periods, then spike rapidly during crises. Between 2012 and 2019, the U.S. stock market saw over 120% growth while gold price increased about 5%.

The beauty of gold isn’t in spectacular returns — it’s in how it behaves differently from your other investments. When your stocks and bonds are having their worst days, gold might be having one of its best.

Where gold falls short

As a safe haven, gold’s main shortcoming is that it works against the market. Buying gold means betting that problems like economic uncertainty or inflation will push investors toward safer options.

“Gold is a commodity. Its price changes due to supply and demand,” explains Evan Luongo, CFP and founder of NoDa Wealth Management in Charlotte, North Carolina. “During certain periods people demand more gold, which causes its price to go up. Does that sound like something you want to invest your life savings in?”

Wall Street has a famous saying: “Put 10% in gold and hope it doesn’t work.” This means good news for your gold likely means bad news for your other investments, and vice versa.

Gold’s unique portfolio role

So why consider gold at all? It’s all about how gold behaves in your portfolio. When your stocks are having their worst days, gold might be having one of its best.

As Michelle Gordon, accredited investment fiduciary (AIF) and founder of Investably, a Latina-owned registered investment advisory in Bethesda, Maryland, explains, “Gold tends to have a lower or negative correlation to traditional assets such as stocks or bonds.” This makes gold an effective tool for diversifying your portfolio. This diversification can help reduce your portfolio’s overall volatility and provide a buffer during market downturns.

If you consider adding gold to your portfolio, you can view it as insurance against market shocks rather than a growth machine. As Ben Loughery, CFP and lead financial planner at Lock Wealth Management in Atlanta, Georgia, explains, “I don’t view gold as a high octane part of the portfolio — I think of it more as a way to hedge against uncertainty as we’ve seen so far this year with geopolitical tension.”

Dig deeper: How I started with $100 and built a strong portfolio with diversified investing

At a glance: Benefits and drawbacks of gold investments

The shine: 4 benefits of investing in gold

Gold offers several potential benefits that have made it appealing to investors for centuries. These advantages become particularly valuable during specific economic conditions.

1. Safety during uncertainty

During economic downturns or market crashes, gold typically performs well. Investors want stability and see gold as safe when they lose faith in financial markets.

This counter-cyclical behavior explains why gold prices spiked during the 2008 financial crisis, the COVID-19 pandemic and recent geopolitical conflicts. When fear dominates headlines and stock markets fall, gold often moves in the opposite direction or at least maintains its value.

2. Protection from inflation

If you’re worried about rising prices eroding your savings, you might find safety in gold. The precious metal has historically preserved purchasing power when paper money loses value. While no investment perfectly tracks inflation, gold has maintained its value over centuries.

Gold ultimately reached a new nominal record high above $3,400 in April 2025 after climbing throughout 2023 and 2024 when inflation ran high. This was a reflection of how investors often turn to gold when they fear that their funds will lose value during prolonged inflation periods.

Does gold always work against inflation? Not all experts agree

3. Diversification for your portfolio

Perhaps gold’s greatest strength is in how it works alongside other investments. Gold has a pretty reliable record as a safe haven and can provide significant diversification benefits since its correlation with both stocks and bonds is typically very low.

This low correlation means gold often moves independently of your stock and bond assets, potentially smoothing your portfolio’s performance over time. Even a moderate 5% to 10% allocation can provide meaningful diversification benefits without dramatically reducing growth potential.

“Gold may be able to enhance portfolio diversification since it is a commodity,” acknowledges Evan Luongo, though he adds, “However, I prefer to hold a broadly diversified basket of commodities,” since this approach spreads risk across different sectors like energy, agriculture, and industrial metals rather than concentrating it in a single precious metal.

4. Value with global acceptance

Gold is globally recognized as a valuable asset, regardless of political or economic conditions. Unlike fiat currencies, which can be devalued through printing, gold’s supply grows slowly through mining, helping preserve its purchasing power over time.

Gold will likely keep its global importance for years to come. Central banks worldwide continue to hold and accumulate gold reserves. Despite fluctuations in purchasing patterns, central banks accelerated their gold purchases in late 2024, with reserve managers adding around 333 tonnes, 54% higher compared to the previous year, according to J.P. Morgan.

Dig deeper: From investments to taxes: How to find the right financial advisor

The tarnish: 5 drawbacks of investing in gold

While gold offers several potential benefits, it also comes with drawbacks that you should carefully consider before adding it to your portfolio.

1. Tax burden increase

Gold faces different taxes — and often higher ones — than other investments. The IRS classifies gold and silver as collectibles, imposing a maximum tax rate of 28% on long-term capital gains. This max rate is higher than the long-term capital gains tax rate for other investments, which tops out at 20%.

This tax treatment applies to physical gold as well as exchange-traded funds (ETFs) and mutual funds that hold physical gold. The IRS considers funds backed by physical precious metals as collectibles for taxes, with the same 28% top federal tax rate on long-term gains.

However, some gold investments, such as stocks of gold mining companies or futures contracts – agreements to buy or sell gold at a predetermined price on a future date – typically qualify for more favorable tax rates.

We asked an expert: How do gold investments impact tax liability?

2. Trading fees and dealer premiums

When buying or selling physical gold, you rarely pay exactly the market price – known as spot price. Dealers typically sell gold above spot price and buy it below spot price. This means that you often end up buying gold above market price and, if you sell to a dealer, you’re likely to receive a below-market price. These gaps can significantly impact your returns, especially for short-term holdings.

For gold coins, premiums range from 5% to 20% above spot price, depending on coin size, design and rarity. Gold bars usually carry smaller premiums of less than 1% to about 5% based on the bar’s size and market conditions. During periods of high demand, these premiums increase, which can erode your potential returns.

3. Storage and maintenance costs

Owning physical gold means you’ll have ongoing storage and maintenance costs. For example, many companies that offer gold individual retirement accounts (IRAs) charge annual storage fees of $100 to $500, depending on your holdings and storage type. Segregated storage, where your gold is kept separately, costs more than unsegregated storage.

Gold IRA companies may also charge annual maintenance fees of $200 to more than $2,000, depending on your balance. You could also incur shipping, handling and liquidation fees when you sell some of your gold. These various fees can easily drain your account, which is why the Commodity Futures Trading Commission (CFTC) issued a warning to people considering investing their retirement savings in gold.

For non-retirement gold investments, you can store your holdings in a safe deposit box at a bank, which often costs $40 to $350 annually. Professional storage facilities and some gold dealers let you store your gold for fees based on the value stored, typically ranging from 0.40% to 1.00% per year.

While your home may not be the best place to keep it safe, home safes offer another option but require an upfront investment of $500 to $2,000 for quality models and may not provide adequate protection against theft or disaster.

4. Market timing complications

If you want to buy gold because you heard its price is rising, you might be buying too late in the cycle. This common investing behavior often leads people to purchase near price peaks, essentially buying after most of the significant gains have already occurred.

The price of gold responds to numerous factors — including inflation rates, interest rates, currency fluctuations and geopolitical events. If you plan to invest in gold, make sure to avoid reactionary purchases that are triggered by market conditions. Instead, use a measured dollar-cost averaging approach by purchasing smaller amounts over time to smooth out gold price swings and reduce the risk of committing too much capital at an unfavorable price point.

5. Lack of income generation

Unlike stocks that pay dividends or certificates of deposit that pay interest, gold produces no regular income. When investing in gold, your profit depends entirely on selling at a higher price than what you paid after accounting for all fees and costs you incurred, as gold doesn’t provide regular income.

While your gold sits in storage, you miss out on potential earnings that other investments could generate. For example, if high-yield savings accounts (HYSAs) pay 4% APY, every $10,000 invested in gold instead of simply putting it in an HYSA means forgoing $400 in annual income or more after accounting for gold-associated fees. Over a decade, that’s $4,000 in lost income — plus the compound growth of reinvesting that income.

If your goal is to generate regular investment income, this silent drain on potential earnings can significantly impact your long-term financial security.

How to decide if gold is the right investment for you

Adding gold to your investment portfolio requires you to weigh its unique benefits against its limitations. Consider these factors when deciding whether you should invest in gold or in other assets.

When gold makes sense for your portfolio

Gold works best as a strategic component within a diversified investment plan rather than a primary growth asset. Consider adding gold to your portfolio when:

• You need portfolio insurance. Gold can provide protection during market turbulence when stocks and bonds face simultaneous pressure.

• Your portfolio lacks diversification. Assigning a portfolio portion of 5% to 10% to gold can reduce overall volatility by adding an asset that moves independently from traditional investments.

• You’re concerned about long-term currency devaluation. Gold’s limited supply makes it resistant to the inflationary pressures that can erode purchasing power of paper currencies over decades.

• You have significant wealth to protect. Higher net worth individuals may benefit from gold’s ability to preserve capital during extreme market events and over long timeframes.

When other investments might serve you better

Despite its appeal, gold shouldn’t dominate your portfolio and might prove unnecessary if:

• You need investment income. Income-generating assets like dividend stocks, certificates of deposit or bonds offer regular cash flow that gold can’t provide.

• You’re in a high tax bracket. Gold’s unfavorable tax treatment of up to 28% on long-term gains can significantly reduce after-tax returns compared to more tax-efficient investments such as long-term capital gains on stocks.

• You have limited investment capital. If you’re building your wealth, prioritize tax-advantaged retirement accounts such as 401(k)s and Roth IRAs as well as broad market funds before adding alternative assets like gold.

• You already have inflation protection. If your portfolio includes TIPS, I-bonds, real estate or inflation-adjusted income sources, gold price’s volatility may outweigh its inflation-hedging benefits.

5 ways to invest in gold

Adding gold to your portfolio doesn’t mean you need to store shiny coins or heavy bars in your basement. You have several options for investing in this precious metal, from physical ownership to paper investments that offer more convenience and potentially lower costs.

1. Physical gold

Buying actual gold provides direct ownership that many investors find reassuring. You can touch it, hold it and know it’s yours. Popular options include:

• Gold coins. Government-minted coins like American Eagles and Canadian Maple Leafs make it easy to own small amounts of gold. They have higher premiums over market prices than bars but you can sell them more easily and in smaller amounts if needed.

• Gold bars. Available in various sizes from tiny 1-gram pieces to massive 400-ounce blocks, bars typically have smaller premiums over the gold’s actual value compared to coins. This makes them more cost-effective for larger investments, though they’re harder to sell in small portions and might require verification when selling.

• Gold jewelry. While beautiful, jewelry carries significant markups for craftsmanship and design, making it less efficient as a pure investment. Purity varies too — 24 karat represents pure gold, while lower karats contain other metals mixed in.

While buying physical gold has become easier, remember that physical gold requires secure storage and insurance, adding ongoing costs that can eat into your returns over time. Additionally, watch out for companies using high-pressure sales tactics or making unrealistic promises. Several gold dealers and IRA providers have faced lawsuits for misleading marketing, hidden fees and unfair buyback policies that cut your potential profits.

2. Gold ETFs and mutual funds

For most investors, gold funds offer the simplest way to invest in gold without dealing with the complications of physically handling it. These ETFs and mutual funds typically offer lower costs and easier trading compared to physical gold.

Popular gold ETFs include:

• SPDR Gold Shares (GLD)

• iShares Gold Trust (IAU)

• Aberdeen Standard Physical Gold Shares ETF (SGOL)

Popular gold mutual funds include:

• Fidelity Select Gold Portfolio (FSAGX)

• Franklin Gold and Precious Metals Fund (FKRCX)

• Invesco Oppenheimer Gold & Special Minerals Fund (OPGSX)

• VanEck International Investors Gold Fund (INIVX)

These funds track gold prices while eliminating storage headaches and offering easy trading through regular brokerage accounts. However, they do charge annual management fees, typically ranging from 0.15% to 1.50%. Some funds also charge additional fees. For example, FKRCX has a 5.50% front-end fee, a form of commission on every transaction.

Dig deeper: High management fees and other red flags to watch out for when working with a financial advisor

3. Gold mining stocks

Gold mining companies provide another way to invest in the gold market while offering something physical gold can’t — dividend income. These stocks represent ownership in businesses that extract and process gold rather than the metal itself, so they aren’t exactly the same as investing in the precious metal.

Keep in mind that when you buy mining stocks, you invest in companies with their own strengths and challenges. This includes management quality, how much it costs them to extract gold, whether they discover new deposits, their debt levels and even political stability in the countries where they operate mines. All these elements affect the stock price alongside the changing value of gold itself.

Individual mining stocks include companies like Newmont Corporation (NEM), Barrick Gold (GOLD), and Franco-Nevada (FNV). Alternatively, you can avoid picking individual stocks by investing in diversified mining ETFs such as:

• VanEck Gold Miners ETF (GDX)

• SPDR Gold Miners ETF (GDX)

• VanEck Junior Gold Miners ETF (GDXJ)

These funds help spread risk across multiple companies and geographies while simplifying the investment process.

4. Gold futures and options

For experienced investors, gold futures and options offer a more advanced way to invest in gold. These financial contracts let you trade more gold than you could normally afford with your available cash.

Think of it like putting down a small deposit to control a much larger amount of gold. This approach can multiply your profits when gold prices move in your favor. But there’s a big catch — it can also multiply your losses when prices move against you.

Unlike buying physical gold or gold stocks that you can hold indefinitely, these contracts come with expiration dates. You’ll need to actively manage them and make decisions before they expire. Because of their complexity and risk, these options work best for investors with more experience and time to monitor their investments.

5. Gold IRAs

Self-directed Gold IRAs let you hold physical gold, letting your investment grow without taxes until withdrawal. However, when you withdraw after age 59½, it’s taxed as income, and early withdrawals may face penalties.

Keep in mind that strict IRS rules govern what gold products qualify and how they must be stored. You’ll need a specialized custodian, and you can’t keep the gold at home. Setup and management fees typically exceed those of conventional IRAs.

Be particularly cautious when choosing a gold IRA provider. The industry has seen numerous regulatory actions against companies charging excessive fees or using deceptive marketing tactics. Several providers have faced lawsuits for misleading seniors about risks and costs. The CFTC recommends thoroughly researching any gold IRA company, understanding all fees, and watching out for promises of exceptional returns or fear-based marketing techniques.

Learn more about investing and growing your wealth

FAQs: Investing in gold

Here are answers to some of the most common questions about investing in gold. And learn more in our growing library of personal finance guides that can help you save money, earn money and grow your wealth.

Does Warren Buffett invest in gold?

Warren Buffett has historically avoided gold investments, famously criticizing gold as an unproductive asset. In his view, gold doesn’t create anything or generate income — it just sits there, incurring storage costs.

However, in 2020, Buffett’s Berkshire Hathaway made headlines by purchasing shares in Barrick Gold, a major gold mining company. This wasn’t a direct investment in gold itself but rather in a business involved in gold production. Even this position was short-lived, as Berkshire sold most of its Barrick shares within a few quarters.

Buffett continues to prefer productive assets like businesses that generate earnings and dividends rather than gold itself.

How do you sell gold?

If you own physical gold like coins or bars, you can sell it to reputable coin dealers, precious metals retailers, or online bullion dealers like APMEX, JM Bullion or SD Bullion. You can also sell directly to other collectors through online marketplaces, but this requires caution. Most buyers pay slightly below the spot price, so it’s smart to shop around and get multiple quotes before you decide where to sell your gold.

If you own shares in gold ETFs, you can sell your shares through your brokerage account just like any stock. Gold mining stocks also trade on exchanges, while gold mutual funds are redeemed through your fund company. If you’re selling physical gold purchased through a gold IRA company, watch out for buyback policies and fees — some companies offer buyback prices 20% to 30% below the market price.

What is the average return on gold?

Gold has delivered some eye-catching gains — particularly in recent years. For example, after a 13% climb in 2023, gold surged 27% in 2024, and is up another 27% so far in 2025. Stretching back to 1971, when the dollar floated free of the gold standard, average annual returns have hovered around 10% to 11%. But it isn’t all smooth sailing. Gold price’s performance tends to be inconsistent. For example, prices dipped 28% in 2013 and plunged over 32% in 1981 — and there have been several multi-year slumps when it remained largely flat.

Sources

About the writer

Yahia Barakah is a personal finance writer at AOL with over a decade of experience in finance and investing. As a certified educator in personal finance (CEPF), he combines his economics expertise with a passion for financial literacy to simplify complex retirement, banking and credit topics. He loves empowering people to make informed financial decisions that improve their everyday and long-term wellness. Yahia’s expertise has been featured on FinanceBuzz, FX Empire and EarnForex. Based in Florida, he balances his love for finance with freediving, hiking and underwater photography.

Article edited by Kelly Suzan Waggoner

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