Each investor has their own reasons for choosing specific investments. Investing in gold can offer a hedge against inflation and economic uncertainty. It also helps diversify an investment portfolio, thereby reducing overall risk due to its potentially low correlation with other asset classes. Additionally, gold maintains its intrinsic value over time, preserving wealth through various economic conditions, as it is used in certain industries.

Here are seven practical reasons to consider owning some gold.

A History of Preserving Value

Unlike paper currency, coins, or other assets, gold has consistently maintained its value over the centuries. People regard gold as a means to transfer and preserve wealth across generations. Since ancient times, gold has been treasured for its unique properties. It is respected globally for its value and rich history, recognized by various cultures for thousands of years. Gold coins first appeared around 550 B.C. during the reign of King Croesus of Lydia.

Over the centuries, people have continued to hold gold for numerous reasons. Societies—and now modern economies—have consistently valued gold, reinforcing its worth. Gold serves as a fallback when other forms of currency fail, making it a reliable form of insurance during tough times. Additionally, gold has practical applications in technology, dentistry, and other industries.

Gold does not corrode and can be easily melted over a common flame, making it simple to work with and mint into coins. Furthermore, gold has a distinct and beautiful color, unlike any other element. The heavier atoms in gold cause its electrons to move faster, leading to the absorption of some light—a phenomenon explained by Einstein’s theory of relativity.

Reasons to Own Gold

Let’s examine some of the primary reasons for owning gold. This list is presented in no particular order and does not necessarily reflect the importance of each reason.

1. Weakness of the U.S. Dollar
   Although the U.S. dollar is one of the world’s most significant reserve currencies, its value can fluctuate. From 1998 to 2008, the dollar weakened against other currencies, prompting many to seek the security of gold, which drove up its price. During this period, gold prices nearly tripled, reaching the $1,000-an-ounce milestone in early 2008 and almost doubling again by 2012, surpassing $2,000. Changes in the dollar’s value can occur for various reasons over different timeframes, influencing the demand for gold.
2. Inflation Hedge
   Gold is often considered a hedge against inflation because its price tends to rise when the cost of living increases. During periods of high inflation, gold prices can soar while the stock market may decline. This happens because, as fiat currency loses purchasing power, gold, priced in those currency units, tends to rise. Additionally, gold is viewed as a good store of value, encouraging people to buy it when they believe their local currency is depreciating. However, market and economic conditions are always changing, and past trends may not always hold true.

In 2022, despite soaring inflation, gold prices declined for most of the year, partly due to the strong U.S. dollar. However, with persistent inflation and recession concerns, gold prices rose in the final months of 2022 and early 2023, reaching an all-time high in May 2024.

3. Deflation Protection
   Deflation, characterized by falling prices, slowed business activity, and excessive debt burdens, has been rare globally since the Great Depression of the 1930s. However, a brief period of deflation occurred after the 2008 financial crisis in some regions. During the Depression, the purchasing power of gold increased significantly as other prices plummeted. People hoarded cash, and gold and gold coins were considered the safest way to hold cash.
4. Geopolitical Uncertainty
   Gold retains its value during times of financial and geopolitical uncertainty. Often referred to as the “crisis commodity,” gold attracts investors seeking safety when global tensions rise. During such times, gold often outperforms other investments, with its price increasing most when confidence in governments is low.
5. Supply Constraints
   Since the 1990s, much of the gold supply has come from central banks selling gold bullion. However, this selling slowed significantly in 2008. Simultaneously, new gold production from mines has been declining since 2000.
6. Increasing Demand
   Rising wealth in emerging market economies has boosted demand for gold. In many of these countries, gold is deeply embedded in the culture. In China, gold bars are a traditional form of savings, maintaining steady demand. India, the second-largest gold-consuming nation, uses gold extensively, particularly in jewelry. The Indian wedding season in October typically drives the highest global demand for gold.

Investor demand for gold has also grown. Many now view commodities, especially gold, as a crucial investment class. The SPDR Gold Trust (GLD) has become one of the largest and most actively traded exchange-traded funds (ETFs) in the United States.

7. Portfolio Diversification
   Effective diversification involves selecting investments that are not closely correlated. Historically, gold has had a negative correlation with stocks and other financial instruments. For instance:

• The late 1970s were favorable for gold but poor for stocks.
• The 1970s and 1980s were excellent for gold but challenging for stocks.
• The late 1990s and mid-2000s were strong for stocks but weak for gold.

A well-diversified portfolio combines gold with stocks and bonds to reduce overall volatility and risk.

How to Invest in Gold

While ease of purchase alone isn’t a compelling reason to invest, gold has indeed become more accessible. The simplest and most popular way to invest in gold today is through Exchange-Traded Funds (ETFs) and mutual funds. These financial instruments allow you to own shares that represent gold without needing to physically possess it. This electronic ownership makes it easier to buy, sell, hold, and secure your investment.

For those who prefer tangible assets, purchasing gold bullion and coins is another viable option. This method appeals to investors who want to hold physical gold. Gold bullion can be bought in the form of bars or coins, but it’s important to consider the costs and logistics of storing these physical assets.

A newer method of investing in gold is through digital gold. This innovative approach merges the benefits of physical gold with the convenience of digital transactions. Online platforms sell digital gold, which is stored securely by an independent third party in insured vaults. In return, you receive a digital certificate of ownership.

In addition to the various reasons to invest in gold mentioned earlier, its liquidity is another advantage. Gold is relatively easy to buy and sell, adding to its appeal as a convenient investment.

Why Should I Invest in Gold?

There are several compelling reasons to add gold to your investment portfolio. Historically, gold has maintained its value, making it a reliable hedge against inflation. Gold prices often rise when the U.S. dollar is weak or during periods of economic and political instability. Moreover, gold can enhance portfolio diversification, as its price typically shows a negative correlation with other asset classes.

What Determines the Price of Gold?

Gold prices can be volatile in the short term but have generally maintained their value over the long term. The price of gold is influenced by supply, demand, and investor behavior. As gold is often used to hedge against inflation, the rate of inflation and market expectations for future inflation can impact its price. Additionally, deteriorating economic conditions can drive up gold prices, as the metal is considered a safe investment during turbulent times.

How Can I Invest in Gold?

There are multiple ways to gain exposure to gold. You can own physical gold in the form of bullion, coins, or jewelry, although storing and insuring these assets can be costly. Alternatively, you can invest in gold electronically through ETFs or mutual funds, which offer a more convenient and liquid option.

What Is the Difference Between 24k, 22k, and 18k Gold?

The difference lies in the gold content. 24k gold is pure gold, 22k gold contains 91.67% gold, and 18k gold contains 75% gold, with the remainder being other metals.

Why Is Gold Valuable?

Gold’s value stems from its rarity, durability, and historical significance as a medium of exchange and store of value. It tends to maintain its value during economic downturns, making it a popular safe haven for investors. Additionally, gold has practical uses in jewelry and electronics.

The Bottom Line

Gold is a crucial component of a diversified investment portfolio because its price tends to rise during events that cause the value of paper investments, such as stocks and bonds, to fall. Although gold prices can be volatile in the short term, the metal has consistently maintained its value over the long term. Gold serves as a hedge against inflation and the erosion of major currencies, making it a worthwhile investment to consider.