8 Good Reasons to Own Gold (2024)

Gold is respected around the world for its value and rich history, which has been recognized by cultures for thousands of years. Coins containing gold appeared around 550 B.C., during the reign of King Croesus of Lydia.

Throughout the centuries, people have continued to hold gold for various reasons. Societies, and now economies, have placed value on gold, thus perpetuating its worth. It is the metal we fall back on when other forms of currency don’t work, which means it always has some value as insurance against tough times.

Below are eight practical reasons to think about owning some gold.

Key Takeaways

  • Throughout history, gold has been seen as a special and valuable commodity.
  • Today, owning gold can act as a hedge against inflation and deflation alike, as well as a good portfolio diversifier.
  • As a global store of value, gold can also provide financial cover during geopolitical and macroeconomic uncertainty.

A History of Holding Its Value

Unlike paper currency, coins, or other assets, gold has maintained its value throughout the ages. People see gold as a way to pass on and preserve their wealth from one generation to the next. Since ancient times, people have valued the unique properties of the precious metal.

Gold doesn’t corrode and can be melted over a common flame, making it easy to work with and stamp as a coin. Moreover, gold has a unique and beautiful color, unlike other elements. The atoms in gold are heavier, and the electrons move faster, creating absorption of some light—a process that took Einstein’s theory of relativity to figure out.

Weakness of the U.S. Dollar

Although the U.S. dollar is one of the world's most important reserve currencies, when the value of the dollar falls against other currencies—as it did from 1998 to 2008—this often prompts people to flock to the security of gold, which raises gold prices. The price of gold nearly tripled from 1998 to 2008, reaching the $1,000-an-ounce milestone in early 2008 and nearly doubling from 2008 to 2012, rising above the $2,000 mark. The decline in the U.S. dollar then occurred for a number of reasons, including the country’s large budget and trade deficits and a large increase in the money supply.

Inflation Hedge

Gold has historically been an excellent hedge against inflation because its price tends to rise when the cost of living increases. Over the past 50 years, investors have seen gold prices soar and the stock market plunge during high-inflation years. This is because when fiat currency loses its purchasing power to inflation, gold tends to be priced in those currency units and thus tends to rise along with everything else. Moreover, gold is seen as a good store of value, so people may be encouraged to buy gold when they believe that their local currency is losing value.

Although inflation soared in 2022, gold prices actually declined for most of the year, driven in part by the strength of the U.S. dollar against other currencies. However, with inflation remaining at persistently high levels alongside concerns about a potential recession, gold prices ticked higher in the final months of 2022 and early in 2023.

Deflation Protection

Deflation is defined as a period when prices decrease, business activity slows, and the economy is burdened by excessive debt. This has not been seen globally since the Great Depression of the 1930s (although a small degree of deflation occurred following the 2008 financial crisis in some parts of the world). During the Depression, the relative purchasing power of gold soared while other prices dropped sharply. This is because people chose to hoard cash, and the safest place to hold cash at the time was in gold and gold coins.

Geopolitical Uncertainty

Gold retains its value not only in times of financial uncertainty but also in times of geopolitical uncertainty. It is often called the “crisis commodity” because people flee to its relative safety when world tensions rise. During such times, gold often outperforms other investments. Its price often rises the most when confidence in governments is low.

Supply Constraints

Much of the supply of gold in the market since the 1990s has come from sales of gold bullion from the vaults of global central banks. This selling by global central banks slowed greatly in 2008. At the same time, the production of new gold from mines has been declining since 2000.

According to BullionVault, annual gold-mining output fell to 2,444 metric tons in 2007 from 2,573 metric tons in 2000. Since then, gold production has posted a decade of gains, peaking at 3,300 metric tons in 2018 and 2019 before peaking again to 3,644 metric tons in 2023.

Increasing Demand

In previous years, increased wealth of emerging market economies boosted demand for gold. In many of these countries, gold is an integral part of the culture. In China, where gold bars are a traditional form of saving, the demand for gold has remained steadfast. India is the second-largest gold-consuming nation in the world; it has many uses there, including jewelry. As such, the Indian wedding season in October is traditionally the time of the year that fuels the highest global demand for gold.

Demand for gold also has grown among investors. Many are beginning to see commodities, particularly gold, as an investment class into which funds should be allocated. In fact, the SPDR Gold Trust (GLD) has become one of the largest and most frequently traded exchange-traded funds (ETFs) in the United States.

Portfolio Diversification

The key to diversification is finding investments that are not closely correlated with one another. Gold has historically had a negative correlation to stocks and other financial instruments. Recent history bears this out:

  • The late 1970s were great for gold but terrible for stocks.
  • The 1970s and 1980s were great for gold but terrible for stocks.
  • The late 1990s and mid-2000s were excellent for stocks but horrible for gold.

Properly diversified investors combine gold with stocks and bonds in a portfolio to reduce the overall volatility and risk.

Why Should I Invest in Gold?

There are many reasons to consider adding gold holdings to your investment portfolio. The precious metal has a history of maintaining its value, making gold a useful hedge against inflation. Gold prices tend to increase when the U.S. dollar is underperforming or during times of economic and political uncertainty. Finally, gold can provide an important level of diversification to your portfolio, as gold prices have historically shown a negative correlation with other asset classes.

What Determines the Price of Gold?

Gold prices can be volatile in the short term, but the metal has maintained its value over the long term. In general, movements in the price of gold depend on supply, demand, and investor behavior. Because the metal is often used to hedge against inflation, the pace of inflation—and market expectations for future inflation levels—can have an impact on gold prices. In addition, deteriorating economic conditions may bolster gold prices because the metal is seen as a relatively safe investment in difficult times.

How Can I Invest in Gold?

There are many vehicles for adding investment exposure to gold. It is possible to own the physical metal in forms such as bullion, coins, or jewelry, although storing and insuring physical gold assets can be costly. Other possibilities include investing in a gold exchange-traded fund (ETF) or buying shares in mining companies that engage in the extraction and production of the precious metal.

The Bottom Line

Gold should be an important part of a diversified investment portfolio because its price increases in response to events that cause the value of paper investments, such as stocks and bonds, to decline. Although the price of gold can be volatile in the short term, it always has maintained its value over the long term. Through the years, gold has served as a hedge against inflation and the erosion of major currencies, and thus is an investment well worth considering.

8 Good Reasons to Own Gold (2024)

FAQs

Why is it good to own gold? ›

Throughout history, gold has been seen as a special and valuable commodity. Today, owning gold can act as a hedge against inflation and deflation alike, as well as a good portfolio diversifier. As a global store of value, gold can also provide financial cover during geopolitical and macroeconomic uncertainty.

What is so good about gold? ›

The unique colour and shine, combined with the fact it doesn't tarnish, gave gold a unique edge over other metals and the rarity installed confidence because people could have faith it would hold its value as the difficulty in mining gold meant no-one could try to devalue the metal as a currency.

What are the pros and cons of buying gold? ›

But before you do, consider the following pros and cons.
  • Pro: Inflation continues.
  • Con: Gold's price.
  • Pro: Gold's price growth.
  • Con: You'll need to store your gold.
  • Pro: Gold is highly accessible.
  • Con: Gold won't produce income as rapidly as other assets.
3 days ago

Why is gold the best asset? ›

Gold is a highly liquid asset, which is no one's liability, carries no credit risk, and is scarce, historically preserving its value over time.

Is gold as good as money? ›

Gold, not cash, acts as a hedge against inflation

During periods of high inflation, like we're experiencing now, the value of cash tends to erode. However, gold's value tends to rise when inflation is persistent, effectively protecting your purchasing power.

Why is gold better than cash? ›

Why is gold a better long-term investment than cash? Gold acts as a stable store of value by maintaining its purchasing power over long periods. It has limited supply growth, making it a rare tangible asset. During times of economic turmoil, when cash is devalued, gold prices often rise, thereby preserving wealth.

What are 7 interesting facts about gold? ›

17 Fun Facts About Gold
  • Gold Comes from Meteorites.
  • Gold Is Malleable.
  • Gold Is Alloyed With Other Metals.
  • Gold Is Yellow.
  • Gold Is Ductile.
  • Gold Is Nontoxic.
  • Gold Is Pliable.
  • Gold Is Dense.
Apr 29, 2024

What are 3 facts about gold? ›

Interesting facts about gold
  • Gold is a 'noble' metal, meaning that it does not rust or lose its shine. ...
  • Gold is the only yellow metal. ...
  • Gold is one of the heaviest and densest of all metals in the Periodic Chart; a cubic foot would weigh more than half a ton.
  • Pure gold will melt at 1064.43° and boils at 2856.1°.

Is it really smart to buy gold? ›

Gold is often considered a good investment for diversification, as it may be less correlated with other assets such as stocks or bonds.

Is 1 oz of gold a good investment? ›

Investing in 1-ounce gold bars, like any other investment, generally requires a long-term perspective. While gold has proven to be a reliable store of value over time, its price can experience short-term fluctuations — especially in uncertain economies like the one we're experiencing now.

How much is one ounce of gold worth? ›

Live Gold Spot Prices
Gold Spot PricesTodayChange
Gold Prices Per Ounce$2,301.00-2.00
Gold Prices Per Gram$73.98-0.06
Gold Prices Per Kilo$73,977.15-64.30

What are 5 interesting facts about gold? ›

30 facts about Gold that you may not know
  • Gold is extremely ductile. ...
  • The first Gold coins appeared around 700 BC.
  • On the periodic table of elements, Gold's symbol is AU.
  • Gold's atomic number is 79, and its atomic mass is 196.96655 amu.
  • The melting point of Gold is 1,064.43°C (1,947.97°F).

Is gold still a safe haven? ›

Ultimately, gold is a safe haven, and we are not wrong to think of it as such. There will always be a demand for gold, not least because its value is stable and it can provide protection from inflation and diversification for investors' portfolios.

How much gold should I own? ›

Most experts recommend limiting your gold investment to 10% or less of your overall portfolio. The range between 1% and 10%, however, will often vary based on your age and overall investor profile.

Is gold a good investment now? ›

By investing in gold now, you'll boost your protections against still present (but cooled) inflation and you'll diversify your portfolio to better protect against any future economic concerns. And you can do so in a multitude of easy ways, from purchasing gold bars at Costco to investing in gold IRAs for retirement.

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