Pros and Cons of Investing in Gold


The following is a guest post. Enjoy! 

Gold investment is a common topic in many television and Internet advertisements. However, it has developed a reputation for being unsafe and uncertain. Recent turns in the gold market make this reputation questionable. Additionally, certain investment strategies can help you avoid losses and risk.

Performance of Gold Investments

Gold has been on a bull-run for the past decade. Investments in gold have been largely rewarding, due to increased flux through the market (through groups like Cash 4 Gold). Additionally, the Euro Zone crisis has helped gold futures following the International Monetary Fund’s agreement to raise additional money for the Euro Zone. In the short term, it appears gold will continue to appreciate in value as the economy turns around and currency equities rise.
However, it also appears that investing in gold has been on the decline recently. This means lower demand and lower prices, but whether this indicates a long-term trend towards gold devaluation is unclear. Gold, therefore, may make a stronger short-term investment rather than a long-term investment. Markets, both domestic and international, need to be watched for trends towards depression or deflation.

What Will the Future Hold for Gold Investing?

In 2012, gold has already seen a rise in value greater than 5%. This well exceeds inflation, and a return on a long-term investment would be positive if this trend continues. Although no market is certain, international debt crises seem to indicate that, until markets show a definite turnaround, gold will continue to appreciate in value. It is a buyer’s market for gold, though how long the window of opportunity will be open is unclear.
However, American jobless numbers are beginning to decline (or at least stabilize), which means gold futures could start to decline. However, if other countries continue to suffer from the recession, gold will continue to be a strong and potentially high-yield investment opportunity. The most difficult determination will be when gold has hit its peak value.
You can more or less be guaranteed a positive yield on a gold investment if you wait long enough. Although the prices fluctuate like any other commodity, gold demand is consistent and gold production is continually on the decline. If the economy takes a strong turn for the better, gold for products like jewelry and decorations will be in higher demand, driving the price of gold upward. Gold is generally reserved for special occasions, such as weddings, for the average consumer. But, when you factor in that consumer gold comprises millions of consumers, small fluctuations in the ring the average consumer can afford could equate to thousands of ounces of gold, driving demand and prices up.
Whether you’re looking for a short-or long-term investment, now is the time to invest in gold, especially with the current convenience of online trading with a leading broker.. Gold as an alternative for currency will continue to be desirable as long as economies are winnowing. As the markets improve, expect temporary declines in gold until consumer demand begins to rise. If you’re looking for an intermediate-term investment, gold is uncertain–the gap between economic upswing and consumer demand may result in temporary declines in the value of gold.

How about you all? Is gold currently incorporated as a part of your investing strategy? Why or why not? What’s the best way you’ve found to invest in gold? 

Do you think gold will continue to go up in price?

Share your experiences by commenting below!

Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article:

  • Fairly frequently, I get asked about my thoughts about using gold as an investment. Unfortunately, I have very little expertise/knowledge about gold, so I cannot provide very much guided assistance. However, it’s good to have another post here to bring this topic to the forefront!
  • @ The future direction of gold – 
    • I do know that gold has been an investment of choice in the past few years since the recession in 2008-2009. As such, the prices of gold have increased drastically.
    • Because of this, I would be very careful about placing a lot of money in to gold due to risk of buying in at the “top” of the upward price swing.
  • @ Whether or not gold is a safe and/or good investment + how gold should/should not be incorporated in to one’s investing strategy – 
    • Personally, I do not have gold incorporated as part of my investing strategy.
    • However, is gold a good thing to have in one’s investment mix? My answer is “probably,” however, I would need to do some more research about this to tell for certain.
    • If I did, I would either use ETFs or precious metal index mutual funds to do this, as opposed to buying physical metal holdings.
    • Additionally, I would ensure that only a small proportion of my total investment holdings were placed in gold/precious metals.
    • One very attractive characteristic about precious metals is that they have relatively low correlation coefficients with the returns of normal equity investments. As such, the addition of precious metals to my investment portfolio would give further diversification and help shifting the efficient frontier for risk/return trade-off.

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  1. I think the volatility and risk in gold is radically understated here. Had you bought gold during the last speculative gold frenzy – say at $650 is 1980, you'd STILL be underwater factoring in inflation even 30 years later. Like most speculations, it depends heavily on when you get in. And buying high is not the winning formula for such things.
    My recent post The Market Takes The Stairs Up And The Elevator Down

    • Good warning there off-road! One of my friends was recently talking about putting a huge amount of his money in to gold alone, and had to make sure to tell him to diversify.

  2. jack foley says:

    Great post..!

    I think that ultimately we will never again be trading in gold coins – i think we will be safe with the etf's and mining stocks..
    My recent post How The Self Employed Can Increase Productivity

  3. Like everything else that pops I think this one will be heading there sooner than later. Wouldn't it be nice to go back to the gold rush of 1848? What a scene that must have been.
    My recent post Website Shout Out – Life and My Finances

  4. brianawalkerr says:

    At present its every investor is having a serious look on gold market trends and statistics of its price falling down in order to make their investment decision whether it's price will recover or it will get stable at a lower price. This is the only thing making investors think whether they should invest in it or not.

    • Thanks for reading Briana. Do you incorporate gold or precious metals in your asset allocation?
      My recent post Carnival of Financial Planning B – April 19th, 2013 – Thinking of Boston Edition

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