According to the World Gold Council, in 2024, the overall demand for gold reached a record annual total of 4,974 metric tons, driven by the growing investor demand as well as active buying by central banks. At the same time, annual investment increased by 25% year-on-year, to 1,180 tons, signaling that this asset remains strategically important at the global level.
Many private investors tend to price gold solely from the perspective of short-term price fluctuations, missing out on its fundamental value as a hedging and long-term capital protection tool. In this article, we will look at the key aspects that need to be considered before investing in gold: the importance of the investment horizon, approaches to valuing the asset, its role as a diversifier, as well as the risks involved.
Investing in gold is a marathon, not a sprint
The investment horizon is one of the most critical factors when it comes to determining a gold investment strategy. While most investors claim they are prepared to hold the asset for several years, market behavior tells a different story: panic selling during corrections and attempts to “hold up the bottom” reveal short-term thinking. This approach can distort the perception of gold as a tool for capital preservation and long-term stability.
In other words, gold is an asset whose true value unfolds over time. For instance, had an investor bought gold in the early 2000s, when an ounce was worth around $270, and held it until 2025, the total return would have exceeded 1,000%. This underscores gold’s role as a defensive asset rather than a vehicle for short-term speculation. One might argue that, for example, the S&P 500 delivered comparable returns, but its strong dependence on economic cycles must be taken into account.
Unlike stocks or bonds, gold does not generate income in the form of dividends or coupons and essentially produces no cash flow. At first glance, this may seem like a drawback, but it is precisely gold’s neutrality to credit risks that makes it attractive during periods of uncertainty. Geopolitical risks, currency crises, and recessions — these phenomena are nearly impossible to predict in the short term, yet they shape gold’s value over the long run.
How to properly evaluate gold and why it belongs in your portfolio
When it comes to investing in gold, it is important to discard the conventional notion that its value is determined solely by current spot prices. Gold is not just a commodity like copper or oil, and its true worth, as I have mentioned, is revealed over the long term.
This is why it should also be considered a complementary asset in your investment portfolio. Proper diversification is the foundation of any successful strategy, and gold is often included as a hedging instrument. When equity markets succumb to panic or crisis, gold tends to move in the opposite direction — stabilizing or even growing in value.
Take 2008, for example, when the financial crisis sent global markets tumbling while gold continued to gain value. To be specific: at the start of 2008, gold was priced at $850 per ounce; at the peak of the crisis, it rose to $1,000 per ounce, and by year-end, it corrected to the $800–900 range. You might ask, “So what? The price barely changed, right?” But the key point is that major stock indexes, such as the S&P 500, dropped more than 40% over the entire year. In other words, traditional assets were depreciating, while gold remained relatively stable and even shown modest growth.
Returning to diversification, gold stands out because it doesn’t correlate with other assets like stocks or bonds, with its price movements often independent of overall market volatility. For instance, when stocks fall, gold may stay steady, helping to offset losses. This makes it a form of strategic protection – a kind of “safety cushion” that shields a portfolio from economic shocks.
Gold is not a panacea: risks that investors should consider
Gold is often described as a safe asset and a strategic hedge – but one should consider that it also has its drawbacks.
One key concern is taxation. In certain countries, including Russia and several EU states, physical gold sales may be subject to capital gains tax or VAT, especially if transactions exceed a certain frequency. This may significantly reduce potential profits and must be factored into investment decisions.
Moreover, buying physical gold – bars or coins – comes with extra costs for an investor. Storage and insurance require additional expenses and can eat into returns, and there’s still the risk of loss or theft, particularly if kept at home. Also, physical gold is less liquid than digital assets, so it might not always sell at market value.
Additionally, the sole potential profit from gold comes from price appreciation, which isn’t guaranteed. If prices stagnate or decline, the investor may face ongoing costs without gains. This makes timing and strategic portfolio planning particularly important when investing in gold.
Risk protection or tempting illusion?
In summary, gold remains a key tool for investors who seek to preserve capital and hedge risk amid global uncertainty. But its real value lies in the long term. Unlike short-term speculation, gold investing requires a thoughtful approach, strategic planning, and attention to broader economic trends.
It is important to remember that gold is not a “magic wand” for financial problems. Yet, when used wisely within a long-term strategy, it can serve as a powerful tool to protect your wealth from market instability.
By Yulia Khandoshko, CEO of the broker Mind Money (formerly Zerich Securities)