Is Investing in Gold a Winning Ticket?

Jason Mountford
Jason Mountford
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June 13, 2022
· 3 min read
Is Investing in Gold a Winning Ticket
Is Investing in Gold a Winning Ticket?

Gold is one of the world's oldest assets. The first gold coin was minted in Persia back in 500 BC and still hasn't lost its shine over 2,500 years later. Gold has built a formidable reputation as a store of value, and because it is virtually indestructible, almost all of the gold ever mined still exists in some form.

The total value of the gold market is estimated to be over US$11 trillion, which is made up of gold bullion like bars and coins, jewellery and a small amount that's used in items like electronics.

In this modern age, it may seem kind of strange to consider gold next to other investment assets like stocks, bonds or cryptocurrencies. This article explores if investing in gold is an old-fashioned relic from a bygone era or if it still makes sense in a modern portfolio.

Why Invest in Gold?

Gold's central selling point is as a store of value. Because it's been around for so long, it has an excellent track record. People understand it, and people trust it. You can take a piece of gold to anyone, anywhere in the world, and they'll understand that it has value. Even if you've never seen a gold bar or an actual gold coin, you will most likely have seen or held gold jewellery.

This is why gold is often considered a good hedge against inflation. It's expected to hold its value against the other stuff we buy every day. It's also considered by many to be a 'safe haven' asset. When the stock market is crashing, investors will often flock to gold.

So far in 2022, it's staying true to form. Despite the stock markets all over the world suffering big time, gold is actually up so far this year.

Should You Invest in Gold?

With that all said, is gold a good investment? Many investment professionals would argue that it's not. Whilst it has been around a long time, it lacks the intrinsic value of many other investment assets. It looks nice and has some limited use in industry, but really it only has a value because we as a society have agreed that it has a value. 

Gold doesn't pay an income, and the only way you can make money with it is by selling it to someone else for more than what you paid for it.

The point is that gold can potentially have a place in your investment portfolio, but it should really only be considered an alternative fringe asset. Don't go selling all your ETFs and put all the money in gold unless you're building a bunker and planning for the end of the world.

How to Invest in Gold

To invest in gold, you can try the old-fashioned way with gold coins, jewellery or bars. This might seem straightforward, but you still have to worry about securing it. Most home insurance policies won't cover gold, safes are expensive, and safety deposit boxes at the bank aren't cheap either.

There are more modern alternatives if you want to stay away from physical gold. ETFs aren't just for stocks and bonds; you can also find ETFs that invest in gold or gold futures. Depending on how these are structured, they may not own physical gold, but they aim to track its price using financial instruments.

Investing in gold mining stocks is a more lateral way to get exposure to the gold price. Companies that make most of their revenue from mining gold will naturally rise and fall with the gold price.

Gold vs the Stock Market

Investing in gold might have some niche benefits within a portfolio, but when it comes to growing wealth for the long term, it doesn't hold a candle to the stock market. The Dow Jones Industrial Average is one of the oldest indexes in the United States and comprises 30 of the biggest blue-chip companies in the US.

Since 1915, it has generated a total return of around 60,000% compared to a return from gold of just over 10,000%. So, by all means, look at gold for yourself, but don't let the glitter distract you from the investment assets that really matter.

Read: Investing for Beginners

Also Read: Investing in the UK (in Your 20s and 30s)

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Jason Mountford
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Jason Mountford

Jason is a qualified Financial Adviser in both the UK and Australia and holds a Master’s Degree in Applied Finance. He loves to write about investing and personal finance, and in his spare time, you’ll find him training for marathons and spending time with his family.
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