Gold Is Glittering but May Not Be Right for Your Portfolio

Gold closed above $3,000 per ounce for the first time last week. The precious metal has been setting higher highs and higher lows since rising above a resistance level early last year.

Duke University professor Campbell Harvey attributed the price jump to “de-dollarization and safe-haven demand” in a recent LinkedIn post.

China has increased its official gold holdings by 15% since November 2022. The purchases increase the country’s gold reserves, likely with an intent to build confidence in the Chinese yuan.

Regarding the rising safe-haven demand for gold, Harvey wrote, “In times of heightened uncertainty, investors turn to assets that they perceive will provide protection—and gold always shows up on that list.” He cited the Economic Policy Uncertainty Index as an indicator of how much uncertainty has risen.

I have seen others also cite this index lately. The Economic Policy Uncertainty Index tracks newspaper coverage of policy-related economic uncertainty, federal tax code uncertainty in the U.S. and uncertainty about policy-related macroeconomic variables.

Gold does have a long history as a perceived safe haven. The precious metal rose in value during the Black Monday (1987), Gulf War (1990), dot-com bubble burst (2000–2002) and Great Recession (2007–2009) bear markets.

Its track record is far from perfect. Gold lost value during the Asian currency crisis (1998), the pandemic bear market (2020) and the reinflation bear market (2022).

Gold prices fell more than 6% between the start of 2021 and the end of 2022 even though inflation jumped significantly. Analyses looking over long periods have also shown gold doing a poor job of protecting against inflation.

There are also other considerations when it comes to investing in gold.

The SPDR Gold Shares ETF (GLD), the largest gold exchange-traded fund (ETF), has realized different returns than the net value of its holdings. (The ETF invests in a trust that holds physical gold.) Through the end of February, the SPDR Gold Shares’ five-year annualized price return was 12.2%. Its net asset value (NAV) increased at an 11.5% annualized rate over the same period. While the discrepancy has worked in favor of those who own shares of the ETF, this tracking error can also work against them in the future.

10-Year Returns for the SPDR Gold Shares ETF (GLD) and the SPDR S&P 500 ETF Trust (SPY)

Source: QuoteMedia. Data as of 3/26/2025.

Owning physical gold exposes you to higher transaction costs, along with transport and storage considerations. The gold bar you buy at Costco cannot be sold back to the store. Rather, you must find another buyer—one who will want a discount on the prevailing price or at least add on a transaction charge of some type. You will also need to safely store the gold and arrange for its secure transit, if necessary.

Then there are taxes. Collectibles, which include gold coins and bars, are taxed at a maximum 28% rate. Mutual funds and ETFs investing in precious metals may also be subject to the collectibles tax rate.

Gold does provide diversification, especially for a stock-heavy portfolio. It has a long history of retaining stored value and can be worn (e.g., jewelry). These positives should be weighed against gold’s shortcomings, because when it comes to investing, not all that glitters is gold.