While the financial markets have been on a roller coaster ride for a few months, reacting to sudden changes to U.S. tariff policy and the latest economic news, gold has been the star of the show.
From January 31 through April 30, 2025, the S&P 500 Index lost 8.5% while the price of gold shot up 16.8% to $3,311 an ounce[1]. If you entered a time machine and went back to the week of President Trump’s inauguration, you would have done well by selling stocks and buying gold ahead of the market chaos that was about to ensue.
But we can’t climb into a time machine and invest then knowing what we know now. So, the practical question is whether you should buy gold now.
Gold investing pros and cons
First, let’s look at the positives and negatives associated with investing in gold generally:
The greatest benefit that gold has to offer a typical investor is as a safe-haven asset. Think of it as a type of insurance policy on your investment portfolio. For example, according to Forbes Advisor, “the price of gold went up by more than 100% between 2008 and 2012, the height of the financial crisis.” [2] Meanwhile, the U.S. stock market, as represented by the S&P 500 Index, lost 37% in 2008 before slowly climbing out of that hole over the next few years. [3]
Because gold is a limited resource, it will always be scarce and have some value. But its greatest value is probably that it is seen as a safe haven asset by investors. That makes its behavior as an offsetting force during volatile times fairly predictable, although nothing is guaranteed!
Perhaps even more important, the price of gold tends to behave differently than both stocks and bonds during both calm and volatile markets. That’s known as having low correlation, which is the basis of effective diversification. So a modest allocation to gold on an ongoing basis can help to stabilize the performance of a portfolio comprised of stocks and bonds.
Now, let’s examine the drawbacks of investing in gold. Gold itself doesn’t generate any income, in contrast to stocks that issue dividends or bonds that pay regular interest. As such, all the value gold can offer investors is a rise in its price.
And although gold can be expected to outperform stocks during turbulent times, it has usually trailed stocks when the economy is robust and the markets are calm. Over long periods, stocks have tended to outperform gold. For example, from 1971 to 2024, the annual return of the S&P 500 Index was 10.70% while gold gained 7.98%. [4]
So, don’t expect an outsized benefit from a large allocation to gold over long periods. However, gold can definitely play an important role as a portfolio diversifier.
Should you buy gold now?
During downturns, it’s important to note that individual investors tend to underperform the overall market because we are driven by our emotions. Those can include fear and greed as well as the fear of missing out. That combination can lead to irrational actions and subpar results.
For most of this year, the stock market has been underwater while gold has been soaring. But what can we expect of their performance in the future? And is buying an asset after it has risen to all-time highs a smart move? Remember: The key to doing well in the financial markets is to buy low and sell high, not the reverse.
All those glittering reports about the performance of gold…they’re like looking in the rear-view mirror. What’s ahead? More market uncertainty is most likely; markets by their very nature can be hard to predict. In many cases, the most prudent action is to allocate a modest amount--say 5%--of one’s portfolio to gold.
How to invest in gold
If you do invest in gold as a diversifier, what is the best way to do so? Buying physical gold can be costly, cumbersome, risky, and illiquid. If you needed to sell, how easy would it be and how long might it take?
A more practical and easy approach is through an exchange-traded fund (ETF) that invests in gold or a mutual fund that invests in gold mining stocks. Those investments are easy to access and are highly liquid.
Speak with a trusted investment advisor
Not sure if gold is right for you? Speak with a licensed investment advisor regarding your particular situation. Also, please remember that past performance is not a guarantee of future results and that all investments involve a degree of risk, including the risk of loss.