Investing in Gold is Hot Right Now, But There Are Pros and Cons
Investing in gold may seem irresistible right now. The price reached a record high of more than $4,000 an ounce this week, and is up 54 percent year-to-date. Other metals, such as silver and platinum, have surged as well. But gold generally attracts the most attention, outperforming various stock indices and Bitcoin so far in 2025.
Why is the Price Going Up?
Investors consider Investing in gold a safe haven in times of political and economic uncertainty. A weakening US dollar, plus anticipated interest-rate cuts by the Fed, have pushed gold’s price higher. Also, there is FOMO – fear of missing out – as people don’t want to miss out on the economic, well, gold rush. Many experts consider gold overbought right now, but at the same time can see the price pushing $5,000 an ounce by the end of the year.
Pros of Investing in Gold
As mentioned above, buyers use gold as a hedge. For example, when inflation is growing rapidly, the purchasing power of the dollar decreases, while gold generally maintains or increases its value. As the dollar continues to sink, more people take their money out of dollar-based investments and move it to physical assets. That means the dollar goes down further, which the price of gold goes higher.
The current economic situation is somewhat at odds with that picture. Despite political upheaval and global economic uncertainty, the stock market has been doing well this year. At the same time, gold is rising!
While most people investing in gold buy units of highly pure metal – ingots, coins – the value of gold jewelry generally increases as the price of gold bars rises. Thus, beyond pure investment, you get the enjoyment of bestowing beauty on yourself or your loved ones.
Cons of Investing in Gold
Something to consider: You have to somewhere to store your physical units of gold. You’ll probably need to spend money to keep your investment secure wherever you’re keeping it. You’ll need to pay for transportation to get it there, and extra insurance to protect it.
Another problem with gold: Unlike stocks or bonds, which can generate dividends or interest while you hold them, there is no income stream from owning gold. You only realize gain if you sell it after the price increases to more than you bought it for.
Gold’s Tax Implications
Like any other investment, gold is subject to capital gains tax when you sell it. But because the IRS considers precious metals collectibles, they have a higher rate for long-term capital gains tax. Long-term is when you hold your investment for more than one year. Depending on your income bracket, you could pay as much as 28-percent tax on your gain, versus the maximum 20-percent on stocks and bonds.
Should You Buy In?
One last note: While gold has been on quite a ride, its price tends to retreat when the economy is strong. And while it’s good to have a diversified portfolio of investments, gold usually has a lower average annual rate of return than stocks. From 1971 to 2024, stocks had an average annual return of 10.70 percent, while gold averaged 7.98 percent.
Links
Follow this link for a history of gold.
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