Gold Rush of 2025: 8 Things To Know Before You Invest in Gold

When financial markets and the economy get rocky, some Americans may turn to gold. These investors hope to eliminate some money stress with the "safe haven" investment.

But while gold has some benefits, there are real downsides that could derail your finances if you don't fully understand what you're buying into. We'll start with the pros of buying gold before turning to the cons.

1. Often rises when the economy goes south

Gold is considered a defensive asset, meaning it tends to shine when the economy and stock market stumble.

Investors often flock to gold during recessions or geopolitical crises, which can push up the metal's price when other investments are falling. That's why many see gold as a hedge during unpredictable times.

2. Can protect against inflation

When inflation eats away at the purchasing power of cash, gold often holds its value. The precious metal often gains in value when the Federal Reserve responds to inflation by raising interest rates.

However, this correlation isn't always perfect or guaranteed. It is important to keep that fact in mind before assuming gold will bail you out during times of rising prices.

3. Gives your portfolio more diversification

Holding gold can reduce volatility in your portfolio because its value sometimes moves inversely to the value of stocks and bonds. That means when other assets are underperforming, gold might help cushion the blow.

It might be smart to hold a small percentage of gold in a diversified portfolio for this reason. Just keep in mind that adding too much gold may dilute your returns instead of protecting them.

4. Acts as a form of insurance

Gold doesn't produce income or dividends, but it can offer peace of mind during turbulent times. Think of it less as a growth tool and more as a safety net.

If markets crash, gold's value may hold steady or even rise, offering you some protection.

The cons of gold

Unfortunately, investing in gold has some potential downsides. Make sure you take these cons into account before plunging into the precious metal.

5. Produces no income

Unlike other types of investments — such as stocks, real estate, or bonds — gold doesn't pay interest, dividends, or rent. That means the only way you can make money is if the price of gold rises and you sell it at a profit.

If gold stagnates or falls, you could be left holding an expensive, non-performing asset. Over time, that lack of income can be a serious drag on your portfolio's growth and endanger your financial fitness.

6. Can come with higher taxes

The IRS considers physical gold to be a collectible. That means profits on gold are taxed at a higher capital gains rate of up to 28%.

Collectible tax rates compare unfavorably to capital gains rates on the sale of other investments, which are often 15% or 20%.

So, even if you make a gain on your investment in gold, you might owe more in taxes than you would on other investments.

7. May require you to pay other costs

If you buy physical gold, you'll likely need to cover storage and insurance fees to keep it secure. These ongoing expenses can quietly eat into potential profits.

Even gold ETFs may come with management fees, which may not seem like much but can add up over time. That's a hidden cost many new investors may not factor in.

8. Often provides poor returns

While gold might protect wealth in a crisis, it hasn't delivered strong long-term annual growth compared to other investments such as stocks.

Gold essentially works against the market, acting merely as a safe-haven investment. Relying on gold for long-term wealth building can hold you back. If you're aiming for growth, there may be better investments to help you get there.

Bottom line

Gold can play a meaningful role in a diversified portfolio, especially during uncertain times. But it's not a guaranteed way to build your wealth, and misunderstanding the risks could lead to disappointment or losses.

When you are looking for ways to make money moves and protect your financial future, gold can be one tool in the toolbox. However, it probably shouldn't dominate your investment strategy.

If you are unsure about investing in gold, consult with a financial advisor who can offer guidance.

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• American Hartford Gold helps individuals protect their retirement by rolling over IRAs and 401(k)s into physical gold.
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