Gold prices might be at record highs, but ask any veteran goldbug about investing in the precious metal and they'll likely caution you that it will too often break your heart.
True, investing in gold tends to work in times of trouble. For example, gold prices vaulted past $2,000 an ounce in early March 2022 in response to the Russian invasion of Ukraine. Today, they're rising in response to inflationary fears and central bank buying, among other factors.
Just understand that despite some lustrous returns in the 1970s (thanks to the end of the gold standard and gold peg), and in the first decade of the 21st century, gold has generated disappointing long-term performance compared to equities.
Even its reputation as an inflation hedge isn't all that great.
Historically, at least, gold returns have only kept up with inflation over the long haul; the metal hasn't outperformed. Over the short and medium term, gold's record as an inflation hedge is generally pretty poor.
To be sure, gold ETFs and gold miner stocks can be effective tools in the hands of traders and tactical investors. But that means knowing when to get in – and when to get out.
As for investing in gold for the long term? Suffice to say a buy-and-hold approach has too often ended in tears.
Just look at recent events. If any year should have been good for gold, it was 2022. U.S. stocks plunged into a bear market, and bonds got killed too. Investors worried incessantly over the odds of recession or possibility of stagflation. Inflation hit levels not seen in four decades.
And what did gold prices ultimately do? They ended the year almost exactly where they started.
Since investing in gold is obviously not easy, here are some critical nuggets you must know before betting on the precious metal.
Disclaimer
Data, prices and returns are courtesy of Kitco, DQYDJ, the Perth Mint, the World Gold Council, YCharts, the U.S. Mint and Morningstar.
Over the past 40 years, which investment has performed best?
Gold? Nope. Maybe U.S. bonds? Wrong again. Large-cap stocks traded in the U.S. have easily outperformed those asset classes over the past four decades.
From 1984 through 2024, the S&P 500, with dividends reinvested, returned an annualized 11.6% before inflation. Adjusted for inflation, the market's annualized total return came to 8.6%.
As for bonds, the benchmark 10-year Treasury note delivered an annualized total return of 5.1% over the same time frame. Adjusted for inflation, the 10-year note delivered an annualized total return of 2.2%.
Gold's returns over the same span haven't been quite so brilliant. From 1984 through 2024, the yellow metal generated an annualized return of 4.3% before inflation. After adjusting for inflation, gold produced an annualized return of 1.5%.
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Over the past 30 years, which investment has performed best?
Once again, U.S. stocks beat both U.S. bonds and gold.
From 1994 through 2024, the S&P 500 generated an annualized total return (price appreciation plus dividends) of 10.6% before inflation. After inflation, the return came to 7.9%.
The 10-year Treasury note delivered an annualized return of 3.7% over the same span. Adjusted for inflation, 10-year notes delivered an annualized return of 1.2%.
Gold, meanwhile, generated an annualized return of 5.7% before inflation. On an inflation-adjusted basis, gold's annualized return comes to 3.1%.
The yellow metal trailed stocks once again, but outperformed bonds.
Note that the price of gold actually dropped about 27% between 1989 and 1999. Gold often loses value in prosperous times, as the 1990s generally were.
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What about over the past 20 years?
The early part of the 21st century was gold's time to shine. From 2004 through 2024, gold generated an annualized return of 8.4%. Adjusted for inflation, that comes to 5.6% annualized.
Stocks still beat gold over that two-decade span, however, with a total return of 10.6% annualized, or 7.8% after factoring in inflation. Don't forget that equities fell victim to the bursting of two bubbles – the tech bubble early in the century and the real estate and credit bubbles starting around 2007.
Benchmark Treasury notes came in last during this period, with a 2.4% annualized return, or -0.2% in inflation-adjusted terms.
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Gold isn't the inflation hedge it's cracked up to be
The price of gold doesn't track inflation, as a general rule. Between 1987 and 2001, as inflation fluctuated around 3% a year, the price of gold dropped.
But it is true that during periods of extraordinarily high inflation, gold’s price may soar.
That’s what happened from the mid-1970s through the early '80s, when inflation crept from 4.8% in 1976 to 13.3% in 1979 and 12.4% in 1980, before beginning a long descent. The price of gold leapt from less than $150 an ounce to more than $800 (and then collapsed to $400 by 1981).
The same can't be said of 2022, however, even though inflation spiked around the globe. Heck, in the U.S., inflation hit levels not seen in four decades.
Gold prices climbed about 13% for the year-to-date at one point in the first few months of 2022, but they were also down as much as 10% YTD by November.
By year's end, gold prices were essentially unchanged.
Want a guaranteed inflation hedge? Try Treasury Inflation-Protected Securities (TIPS).
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But gold can indeed be a good hedge in a crisis
Gold can soar in value during hard times, when investors are fearful and uncertain and seek safety. Just look at the diverging paths that stocks and gold took in 2020 amid the outbreak of COVID-19.
When the pandemic-fueled selloff in stocks finally bottomed out on March 23, the S&P 500 was sitting on a year-to-date loss of more than 30%. Gold prices, however, held firm. By March 23, they were up about 1% for the year-to-date.
And then the real fun began. Gold went on a tear over the next four-plus months, rallying 36% through Aug. 6 when it hit a high of $2,067.20 an ounce.
As noted above, the 21st century has given gold several opportunities to shine. The turmoil that followed the Sept. 11, 2001, terrorist attacks and continuing through the 2008-09 economic meltdown was bullish for gold investors.
It's not unusual to see gold’s price rise with bad news (such as the global pandemic or a sovereign debt crisis) and drop with good news (such as better-than-expected economic growth).
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Don't believe the hype: gold is not a good store of value
A longtime argument in favor of investing in gold is that it is a good store of value – that is, its inflation-adjusted price remains relatively stable over long periods.
A store of value implies a steady price, and as we have seen, gold prices are anything but steady. Although gold's correlation to stocks is complicated, suffice to say the precious metal can be volatile. In 2012, for example, the price rose almost 6%. In 2013, it tumbled 28%. In 2017? Up 12.6%. But down 1.2% in 2018.
The same goes for longer time frames as well. Take the past decade, for example, and cut it in half. During the first five years ended April 15, 2016, gold prices fell about 16.5%. But since then? Gold is up about 50% over the past three years.
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Gold isn't the most precious of precious metals
Gold is the most popular precious metal for investors, but it's not the most expensive. Contracts for rhodium, iridium, palladium or platinum can top those for gold, depending on market dynamics.
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Gold funds are better than physical gold
As attractive as coins and bullion may be, funds are the easiest way for retail investors to get exposure to gold.
No wonder: It's much easier to get gold exposure by holding a gold fund electronically in a brokerage account rather than receiving, storing and insuring the physical metal.
The SPDR Gold Shares (GLD), the world’s largest gold-backed exchange-traded fund, has about $80.5 billion in assets. The ETF tracks the price of gold bullion. If you choose to invest this way, Kiplinger prefers the lower-cost iShares Gold Trust (IAU), which has annual expenses of 0.25%, compared with 0.40% for GLD.
You also can invest in numerous mutual funds and ETFs that invest in the stocks of gold-mining companies.
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Hi ho silver
Gold prices can be volatile, but they're nothing compared to silver. The market for silver is smaller than for gold.
Plus, silver has more industrial uses than gold, making the former’s price more sensitive to the ups and downs of the economy. These two factors combine to make silver’s price jumpier than gold’s.
If you want a good night's sleep, go with gold investing, not silver.
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The biggest gold coin is the size of a manhole cover
The largest legal tender gold coin ever produced was struck by the Perth Mint in Western Australia in 2012.
The 2012 "Australian Kangaroo One Tonne Gold Coin" contains one metric tonne of 99.99% pure gold, and is approximately 80 centimeters in diameter by 12 centimeters thick.
The massive coin has a face value of $1 million Australian dollars but is estimated to be worth more than $50 million AUD.
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