Investors aim to diversify their portfolios across multiple assets to minimize their risk and capitalize on more opportunities. Many investors prefer to stick with what they know and opt to buy stocks in their favorite companies. However, limiting yourself to what you know reflects familiarity bias. This bias is a core element of behavioral finance that can hurt an investor’s returns. Investing in assets you know without exploring new opportunities, such as gold, can hurt your portfolio’s long-term performance and leave you exposed to considerable risk.
Most investors gravitate toward stocks and ignore precious metals like gold, and the data backs this up. A study concluded that 84% of Americans do not own gold or silver. Only 6.5% of the respondents owned both gold and silver. American interest in the stock market has a much different narrative. According to a recent survey, 61% of Americans own stocks. Over 80% of households bringing in over $100,000 per year have some of their money invested in stocks.
For many investors, gold is uncharted territory, but now may be the perfect time to build a mini Fort Knox for your portfolio. These are the three pros and cons to consider before investing in gold.
Advantages
Gold has been a staple for civilizations for thousands of years. The commodity always has value as a unit of exchange due to its various capabilities. Gold has a limited supply, and like many commodities, investing in gold is a hedge against inflation. While stocks can eventually lose value due to inflation impacting future earnings, gold tends to rise as inflation heats up.
Additionally, when the stock market goes in to a downturn gold is probably flat or gaining value. The precious metal does not correlate with the stock market, and bad news for the stock market is often good news for gold. Gold can offset your stock portfolio’s losses and help you diversify your portfolio. You can buy shares of gold mining companies, but these stocks have some correlation with the rest of the market.
Lets not forget that Gold ETFs give investors exposure to gold and the ability to quickly enter and exit trades. While many of these ETFs hold onto gold mining companies and have expense ratios, they give investors an easy way to get exposure. It’s never been easier to put gold into your portfolio through one of these funds. Investors should assess fees and long-term performance before putting capital into these funds.
Disadvantages
Gold tends to go in the opposite direction as interest rates. If interest rates go up, gold usually goes down. The U.S. Federal Reserve remains committed to keep interest rates elevated for a longer period of time. This policy can limit gold’s total returns for investors. However, inflation remains the main focus and is the reason interest rates are so high. If inflation continues to get hot, it can benefit gold more than interest rate hikes hurt the commodity. When the Fed eventually lowers rates gold stands to benefit, but that could take a while.
Moreover, if you begin investing in gold, you will have to pay for storage. These annual storage fees will minimize your profits and may cost more than a fund’s expense ratio. Investors who buy physical gold get the satisfaction of owning the commodity, but you then have to have somewhere to put it.
Liquidity is a big issue for many commodities. You can’t enter and exit trades within seconds like you can with stocks. If you buy physical precious metals and store them, you can be stuck with them for quite some time. It can take a while to convert gold into cash for emergencies. Allocating funds across your portfolio so precious metals only consist of the money you don’t need for a few weeks can mitigate this risk.
On the date of publication, Marc Guberti did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to theInvestorPlace.comPublishing Guidelines.
FAQs
"We think if there's a surge in market volatility, especially around the election this fall, gold could make new highs in 2024. If volatility remains low, fundamentals should drive gold higher over the next 12 months regardless of market volatility," Patrick Kennedy, founding partner at AllSource Investments, says.
What are the pros and cons of investing in gold? ›
Gold can be a good investment option in specific situations, such as when inflation is high. During these scenarios, gold can outperform the stock market. However, gold is typically a poor investment option when the economy is strong.
When to buy gold in 2024? ›
List Of Best Days To Buy Gold In 2024
| Auspicious Occasion | Date |
|---|
| Akshaya Tritiya | 10th May 2024 |
| Navratri | 9th April to 17th April 2024, 3rd October to 11th October 2024 |
| Dussehra | 12th October 2024 |
| Dhanteras and Diwali | 29th October 2024 and 1st November 2024 |
4 more rowsJul 5, 2024
You can invest $1,000 in gold, but depending on the form of gold, you may get more or less out of it. For example, $1,000 in gold bullion may get you about 0.5 oz of gold bullion. But you can get around four 1/10 oz American Gold Eagle coins for $1,000.
How much will an ounce of gold be worth in 2024? ›
Gold's price forecast for Q1 2024 at Bloomberg Terminal is between $1,913.63-$2,224.22. Goldman Sachs commodity analysts expect the potential upside of the gold price to be closely tied to changes in US interest rates and dollar movements, leading them to raise the gold price target for 2024 to $2,050 an ounce.
Are 1 oz gold bars a good investment? ›
And like all gold investments, 1-ounce bars can serve as a hedge against inflation. That means buying in now, while inflation remains high, could deliver big benefits.
Should I put all my money in gold? ›
The bottom line. It's probably not a good idea to convert all of your cash savings to gold. After all, doing so could make accessing cash a challenge if and when an emergency arises. On the other hand, chances are that you could benefit from allocating at least some of your investment assets to the precious metal.
How many gold coins should I own? ›
A general rule of thumb for investors is to hold 5-10% of their investment portfolio in gold or gold-related assets. This percentage can vary based on individual risk tolerance and market conditions.
What are the two disadvantages of gold? ›
Investing in gold comes with several disadvantages. Physical gold does not generate passive income or dividends, leading investors to rely solely on price appreciation. Additionally, owning gold incurs storage and insurance costs.
Is it a good time to sell gold in 2024? ›
All signs point to gold remaining a good investment in 2024. This means it's a good time to both buy and sell gold. But as to what this means to you individually, it's always best to seek professional financial advice before taking action.
There is no crystal ball to predict gold price changes, but historically, prices tend to be lower—and thus a good time to buy—during periods of high interest rates, high inflation, a strong stock market, and global or domestic stability. Demand for gold often drops in these conditions.
What will be the price of gold today in 2024? ›
In Kolkata, the gold rate today is ₹73540.0/10 grams, down from ₹75750.0/10 grams on 17-09-2024, and slightly up from ₹74510.0/10 grams on 12-09-2024.
How many ounces of gold can you legally own? ›
Is there any limit on how much gold I can own ? No, there are no restrictions on private gold ownership in the United States.
Is cash better than gold? ›
Is it better to hold gold or cash? For short-term needs, cash is better due to its unmatched liquidity. For long-term buy-and-hold investments, gold is preferable to protect against inflation and provide portfolio diversification.
How much does 1 oz of gold sell for? ›
How much will gold be worth in 2025? ›
Our gold price prediction for the coming years is directionally bullish. Some periods of weakness with gold price pullbacks may be expected. Gold price targets: $3,100 in 2025 and closer to $4,000 by 2026 with a gold peak price prediction of $5,000 by 2030.
How high will gold go in 5 years? ›
For the first quarter of 2026, experts predict that the price of the precious metal will fluctuate in the range of $2,441.00–$2,882.00 and drop to $2,566.00 per ounce by the end of the year. Coin Price Forecast predicts that the price of the precious metal will rise to $4,649.00 per ounce between 2026 and 2030.
