Is it the right time to invest in gold?
Editorial staff, J.P. Morgan Wealth Management
- The optimal timing for buying and selling gold depends on your investment goals.
- The precious metal can play numerous roles in your portfolio, including diversification, hedging against inflation and protecting against market turmoil.
- In addition to physical gold, you can gain exposure to the commodity through ETFs and mutual funds, gold-related stocks, and futures or options contracts.
There are various reasons one might invest in gold – and various ways to do it. The purpose of your investment in the precious metal will determine whether now is the right time for you to hold onto the commodity.
Diversification, doomsday and the US dollar
Some assert that gold is an asset with intrinsic value, making it unique and valuable for investors to hold in their portfolios. Although the commodity could be just as volatile as stocks in the short term, history has shown it to appreciate in value in the long term. Over the past 20 years, the spot price of gold has increased 591.8% to $2,948.77 per ounce as of February 19, 2025.
“Investing in gold, having some portion of it in your portfolio, has been proven to provide portfolio diversification benefits as an uncorrelated source of return,” said Samuel Zief, Head of Global FX Strategy at J.P. Morgan Private Bank. The commodity is not correlated to stocks, bonds or real estate, providing investors with further opportunity to mitigate risk by spreading out their investments in different assets.
Others turn to gold as a safe haven during times of political or economic uncertainty because the commodity appreciates when there is a “big risk-off in the markets,” Zief said. Investors who hold gold view it as a way to protect their wealth, and in some cases, they use the asset as a means to escape the turmoil.
Additionally, people sometimes invest in gold to hedge against inflation, with the idea being that gold appreciates and preserves wealth even more in an environment where investors face rising inflation as the U.S. dollar declines in value and 10-year Treasury real yields decrease. As such, investors often position some of their investments in gold – a hard asset that has traditionally maintained its value as inflation increases.
Is now the right time?
Understanding your investment goals and risk tolerance will help determine if now is the right time for you to allocate a portion of your portfolio to gold. There is unlikely to be a bad time to invest in gold if your goal is diversification. This is because an asset allocation strategy considers long-term versus medium-term returns, accounting for how gold products perform in positive or negative correlation to other assets.
The timing matters more if you are looking to invest in gold for tactical reasons. A potentially good time to invest in gold is when a recession has just hit, bringing expectations of rising inflation and declining rates. If rates are expected to increase alongside inflation, typically mid-cycle, then the opportunity to profit from an investment in gold may have already passed.
Pocket full of gold
After determining your investment goals, consider how you would like to invest in the commodity. It is possible to invest in gold through a variety of ways, including through exchange-traded funds (ETFs) and mutual funds, buying stock in gold miners and owning the physical product. Regardless of the form of gold you choose, it's important to keep your risk tolerance in mind when determining how much exposure you want in commodities.
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Types of investments in gold
Investing in gold ETFs and mutual funds can provide investors with exposure to the precious metal’s long-term stability while offering more liquidity than physical gold and more diversification than gold stocks. Physically backed gold ETFs held 3,242 tons of physical gold on behalf of investors as of November 2023, according to the World Gold Council. However, it is important to note than the value of gold mutual funds and ETFs might not match up with the market price of gold, and these investments might not perform the same as the physical commodity.
Gold stocks are an option for investors who like the idea of adding exposure to gold but do not want to buy the physical commodity. Investing in the stock of companies that mine, refine and trade gold is more straightforward than buying the physical asset since you can buy the stocks using your brokerage account. Gold stocks are typically attractive to growth investors who invest in companies that exhibit signs of above-average growth. Increases in the price of gold are sometimes magnified in gold stocks, with a relatively small increase in the gold price leading to a large jump in share prices.
However, investing in mining has its risks. The share prices of gold companies are not only correlated with gold prices, but they are also based on the companies’ fundamentals, including profitability and expenses. This means that gold stocks can experience high volatility. “It’s still an equity, and it’ll behave like an equity and not necessarily the commodity during times of market stress,” Zief said.
Physical gold is a good option for those who want direct exposure to gold, especially since it is typically less expensive than investing in gold ETFs. However, this option can be a challenging investment for those more accustomed to trading stocks and bonds online. When it comes to physical gold, investors need to pay for storage and obtain insurance for their investment.
The three main types of physical gold investments include bullion, jewelry and coins. A downside to the investment is that gold is a negative-yielding or zero-yielding asset, which means that it does not pay the investor interest – and due to the storage and insurance fees, holding physical gold actually has an associated expense. If you choose to invest in gold bullion, it is worth staying up to date on the price of gold so you can choose the right time to buy and sell.
The riskiest gold investment is trading futures or options contracts, which are forms of speculative investing. A futures contract is an agreement to buy or sell a security for a certain price on a set date, regardless of the market conditions. An options contract, meanwhile, is an agreement that gives you the option, but not always the obligation, to buy or sell a security if it reaches a specific price by a certain date.
Investors who choose to invest in gold through options or futures need to actively monitor their investments so they can sell, roll over or exercise their options before they expire worthless. Also, options and futures include some debt, known as leverage, so investors who overuse them and experience market losses can see those losses add up very quickly.
Frequently asked questions
Historically, gold has outperformed traditional financial instruments, like stocks, during a recession. Statistically speaking, gold and stocks are negatively correlated; if one goes up, the other goes down. This doesn’t mean that investing in gold will automatically be profitable during a recession, just that it might mitigate losses. The reason for this might lie in the fact that investors seek the perceived value of this precious metal, which has withstood the test of time. It might be a self-fulfilling prophecy in that if a majority of investors view gold as holding its value during a recession, then the increased demand for it should result in price appreciation or, at the very least, less depreciation than stocks.
Gold exchange-traded funds (ETFs) are made up of gold-backed assets instead of gold itself. ETFs pool other financial instruments to offer investors exposure to a particular index, sector, commodity or asset class. Their structure is similar to mutual funds except that they can be traded as stocks. With a gold ETF, investors gain exposure to gold without having to buy the physical commodity, which can be quite expensive.
Given that gold has remained valuable for centuries it can stake its claim as a potentially good long-term investment. It has a proven track record of being used as a vehicle to pass wealth through generations. Furthermore, gold holds its value during both inflationary and deflationary times which further adds to its appeal as a long-term investment.
Investing in gold stocks invariably refers to investing in the stock of companies that mine, refine and trade the physical commodity. This can be done much in the same way as one would invest in any other stock, which means opening an account with a stockbroker and buying a gold mining company’s stock.
Research conducted by Goldsilver.com shows the probability of profiting from an investment in gold increases if the commodity is bought at the beginning of January, late March to early April, and mid-June to early July. Since 1975, March was the worst month for gold so buying it then would increase the odds of profitability. Furthermore, the research showed that an investor interested in buying gold should do so by the end of the second quarter of a given year.
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Editorial staff, J.P. Morgan Wealth Management
