What are the pros and cons of investing in gold?

Nick Bendel

Nick Bendel

( 3 min read )

Gold aficionados swear by the stuff. Others think it makes a poor investment. The truth is in the middle – it suits some people but not others.

Like most financial products, gold isn’t a one-size-fits-all solution. Investing in gold will suit some people’s financial position and outlook on life, but not others’.

To help you work out whether gold is right for you, we’ve got five reasons why it might be suitable and five reasons why it might not.

The pros of investing in gold

Inflation insurance – One reason people buy gold is to protect themselves from inflation. The thinking is that if the Australian dollar gets significantly devalued, gold will retain – and even increase – its value.

Disaster insurance – Similarly, some people regard gold as an asset that will always be in demand, no matter how bad times get. The idea is that you will always have a valuable asset, even if financial depression or a major war causes the economy to collapse or your home to be destroyed.

Diversification – A lot of investors like to spread their money around, rather than putting all their eggs in one basket. So you might buy stocks, bonds, property and gold, figuring that if the markets crash and your first three investments plummet in value, your gold will retain or increase its value.

Simplicity – Buying gold coins or gold bullion is easier than picking the right stocks or property to invest in.

Tangibility – Some people feel uncomfortable buying assets they can’t touch – like shares or cryptocurrencies – because they’re sceptical about whether an ‘electronic file’ can retain value over the long term. So they prefer something tangible like gold, which they believe is more likely to retain its value, no matter what happens in the years ahead.

  • Inflation insurance
  • Disaster insurance
  • Diversification
  • Simplicity
  • Tangibility
  • No yield
  • Low capital gains
  • Annoying to transact
  • Hard to store
  • Volatility


The cons of investing in gold

No yield – You can earn interest if you put your money in a term deposit, receive dividends if you invest in shares or collect rent if you buy an investment property – but you won’t get any yield from owning gold.

Low capital gains – Property and shares tend to gain more value in the long term than gold. For example, while the price of gold increased by 132.9 per cent between 1980 and 2017, the All Ordinaries jumped by 1,133.5 per cent.

Annoying to transact – Dealers often pocket a significant margin when buying and selling gold. Also, authenticity is an issue. When you buy, you’ll need to be sure that you’re acquiring real gold. When you sell, you might have to prove that you’re the genuine owner of the gold.

Hard to store – Once you’ve got gold, what do you do with it? Put it in a bank? Hide it under the bed?

Volatility – Gold prices can make big changes in a short amount of time. For example, prices climbed 30.6 per cent in 2010 and fell 27.6 per cent in 2013.

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