Investing in Gold for Long Term | Is This the Best Choice for You?

Some investments are suited for those looking for short-term gains, while other asset classes are better off left alone for some time. When you buy gold coins and other precious metal investments, it is generally considered a long-term investment strategy.

How do gold stocks perform in the long run? Does the historical World Gold Council data on gold prices justify adopting gold as a long-term investment strategy? What is the best way to invest in gold for maximum long-term capital gains?

These are a few of the questions you need to ask yourself before buying gold bullion or investing in gold futures contracts. In the end, for investors who wish to minimize their risks, the safest way to invest in gold coins and other precious metals is as part of a portfolio diversification strategy.

Key Takeaways

  • Geo-political uncertainty and high inflation tend to result in rising gold prices

  • In 2020, the Covid-19 pandemic caused the price of gold bullion to shoot to $2,075 per ounce, and a similar spike was caused by the Russia-Ukraine war

  • Gold is considered a good inflation hedge and viable means to store wealth

  • Stocks and bonds generally outperformed gold over long stretches

  • Shorter investment periods seem to favor those who buy gold

Physical Gold Bullion vs. Stocks and Bonds

Investing in Gold for Long Term

It is not easy to simply declare either physical gold or stocks and bonds as the better investment choice over a long-term period. A lot depends on the period being analyzed and the events in the global economy during that time.

A random sample may seem to suggest that over 30 years stocks, bonds, ETFs, and mutual funds are the better option. However, when one looks at another 30-year period in which there were wars and tough economic times, physical gold will appear to be the better choice.

The price of gold increased by 360% from 1990 to 2020, unlike stocks, such as the Dow Jones, which saw a massive 991% growth during that same period.

Before you rush to downplay gold futures, let us look at another period, between 2005 and 2020. During this time if you had invested in, for example, physical gold or gold ETFs, you would have enjoyed similar returns to the tune of 330%. However, market data on paper assets, such as the Dow Jones Industrial Average showed a low growth of only 153%.

Bonds, on the other hand, show diminishing returns when compared to both buying physical gold and investing in stocks. From 1920 to 2020, investors in bonds witnessed annual growth rates of about 5%, and a 320% 30-year growth average, which is slightly lower than that of gold investments.

A Look at the Gold Price History

Owning gold bars and coins has always been a preferred means of storing wealth. In 1934, the Gold Reserve Act was introduced, followed by the closing of the gold purchase window by President Richard Nixon in 1971. This effectively set the price of gold at $35 per ounce.

Investing in gold was very difficult before the Gold Reserve Act as all citizens were required to surrender their gold in exchange for US dollars. Since then, the price appreciation of gold has been 5,700%, compared to just 4,500% for Dow Jones.

Alternative Ways To Invest in Gold

Gold Price History

The following are some of the common gold investment alternatives preferred by most investors:

Mining Stocks in Gold Mining Companies

Investing in gold by buying shares in a gold mining company is one of the best ways to enjoy the many advantages of gold investments. There are so many different gold mining companies to choose from scattered around the world, such as the Barrick Gold Corp.

However, things like geo-political instability in mining regions and the frequent industrial action by dissatisfied gold miners, have a huge impact on the value of gold mining stocks. If, for example, gold miners in South Africa, a leading producer of gold, decide to go on strike, the availability and price of gold will be affected.

Gold Jewelry

Gold jewelry is a great option for those looking for an easy way to buy, keep, and sell gold. Jewelry has the advantage of adding value to the spot price of gold bullion due to the improved design and functionality of the item.

Gold ETFs, Gold Futures, and Gold Mutual Funds

Unlike buying physical gold and having to worry about storage and transportation, when you deal exclusively with gold Futures, mutual funds, and ETFs, the only thing you need to look at is the market price of gold.

Many online brokerages allow you to make trades 24 hours a day and, depending on how gold performs, you can make a significant profit without ever holding gold in real life.

Average Returns on Gold Investments

When you look at different periods in history, you will see that the returns differ depending on the economic environment. Between 1971 and 2019, for instance, the average return enjoyed by gold investors was 10.6%, which is lower than the 11.3% seen in stocks based on other assets.

However, in 2020 alone, gold returns were a massive 24.6%, thanks to the global battle against the coronavirus pandemic.

Relationship Between Gold Coins Investments and Stock Market Returns

There is an inverse relationship between gold performance and that of the stock market. Conditions such as rising inflation, mining problems in individual gold companies, and political conflicts all play crucial roles in the value of gold or paper assets.

Generally, the value of gold rises at the same time that paper assets and fiat currencies are negatively affected.

Cryptocurrency vs. Owning Physical Gold

At face value, many investors have compared the value of cryptocurrencies to that when you invest in gold stocks in terms of the returns one can expect. However, the level of risk is much higher when buying crypto assets due to how volatile that industry is. The recent crypto crash is a great example of how things can suddenly change for investors in digital assets.

Final Word

There is no doubt that both gold and paper assets are worthy investment choices. You have to look at your circumstances to help decide which option you prefer.

However, given the current state of the global economy, a hedge against inflation would be the wiser choice. That is why one of your 2023 financial goals has to be to diversify your investment portfolio by having more gold in your safe deposit box.

Goldco