Gold is often considered a reliable asset for protecting against inflation. As rising prices diminish the purchasing power of currencies like the U.S. dollar, gold typically appreciates in value over the long term. Investing in gold, such as through a gold IRA, can help investors preserve their portfolio’s value, build wealth, and hedge against market volatility.
“Gold has intrinsic value and tends to retain its worth over time, making it a stable store of value during economic uncertainties,” says Dennis Shirshikov, a finance professor at City University of New York. He also notes gold’s liquidity, highlighting that it “can be easily bought and sold in the market.”
Historically, gold has performed well during periods of high inflation or market downturns but may underperform when the economy is strong. From 1971 to 2024, gold delivered an average annual return of 7.9%, while the stock market offered a higher average annual return of 10.7%.
Understanding Spot Gold and Price Spread
The spot gold price represents the current cost to buy or sell gold in an over-the-counter trade. Investors monitor the spot price to gauge market trends and demand. When the spot price is higher than futures prices, the market is in backwardation; when it’s lower, it’s in contango. These price movements are influenced by supply and demand dynamics, leading to constant fluctuations.
The price spread in gold trading is the difference between the ask price (what buyers pay) and the bid price (what sellers receive). A narrower spread indicates a more liquid market, which is encouraging for investors as it suggests strong demand.
Ways to Invest in Gold
Investors can purchase gold in various forms:
Gold Bars: Known as bullion, gold bars are purchased by weight, with the purity, weight, and manufacturer stamped on each bar.
Gold Coins: Collectible coins, such as the American Gold Eagle, often sell at a premium due to their rarity and design.
Gold Jewelry: Although bought for aesthetic value, the price of gold jewelry often exceeds the value of the gold content.
Gold Futures Contracts: These allow investors to speculate on future gold prices without owning the physical metal.
Gold Funds: Mutual funds or ETFs that hold gold assets allow investors to buy shares that reflect the value of the underlying gold holdings.
Is Now a Good Time to Invest in Gold?
According to financial advisor James Taska, the decision to invest in gold should be tailored to individual circumstances. However, Shirshikov suggests that diversifying with gold can reduce overall portfolio risk and volatility. Given the current inflationary environment and predictions of rising gold prices—J.P. Morgan forecasts an average of $2,500 per ounce by the end of 2024—many experts believe this is a favorable time to include gold in your investment strategy.
