Amid the headlines dominated by economic uncertainty and geopolitical turmoil, many investors are turning to safe-haven assets like gold, and the current trend in gold prices looks quite promising.
The spot price of gold is currently hovering around $4,500 per ounce, indicating a recovery from the slump seen earlier in the summer.
In fact, the price of gold hit a historic high of over $5,500 per ounce in January this year. Despite experiencing significant fluctuations recently, the current gold price remains higher than in recent years.
Gold has long been seen as a hedge asset, offering relative stability for preserving wealth during economic volatility, high inflation, and the darkest days of geopolitical unrest.
While the price of gold has surged recently, with abundant marketing promotions on television and social media, investing in gold still carries significant risks that are often overlooked.
So, before delving into gold investment, here are a few key points to consider:
Unlike traditional investments, gold does not generate returns in the form of interest or dividends. Your profit solely depends on the increase in the price of gold. In other words, you can only make a profit when you sell gold at a price higher than your purchase price.
Historically, gold prices have exhibited sharp short-term fluctuations.
Gold is a commodity and, like many commodities, its price is heavily influenced by macroeconomic, political, and financial factors that are often unpredictable or even impossible to predict.
Although gold prices are currently on an upward trend, the gold market in 2026 has been a rollercoaster ride. According to a research report released by TradingView, a renowned online financial chart and technical analysis platform, substantial price drops in gold are not uncommon.
In 1980, the price of gold peaked at $850 per ounce. However, during the entire 1980s, then-Fed Chairman Paul Volcker raised interest rates to over 15% to curb inflation, leading to a drastic drop in gold prices to $300 by the mid-1980s. This marked the longest bear market in gold history, lasting until 1999.
One reason for this may be that gold does not yield income. So when real interest rates rise, investors tend to shift to assets like bonds that generate income.
Moreover, a strengthening dollar can lead to a decline in gold prices. Between 2011 and 2015, the US Dollar Index (DXY) rose from 73 to 100, while the price of gold dropped from $1,920 to $1,050.
Gold often sees a surge in demand during economic and geopolitical uncertainties. But what happens when these difficult times pass?
During economic recoveries and increased market confidence, gold’s performance tends to be less than ideal. Following the 2008 financial crisis, when markets stabilized, gold entered a prolonged bear market lasting roughly from 2012 to 2015.
Additionally, while the S&P 500 index, a common benchmark for the US stock market, experienced a strong rebound from 1995 to 2000, gold went through a tough decade.
This brings up another issue: opportunity cost risk. When you invest in gold, the potential returns from other assets that you could have invested in instead must be considered.
Once you purchase gold, your funds are locked in and cannot be invested elsewhere until you sell. Additionally, when you do sell, you may incur extra transaction costs.
When selling physical gold, selling at the fair market price at that time can be challenging. Dealers may offer to buy your gold at a bid price lower than the spot price to profit from resale.
You also need to factor in the premium you paid when buying gold initially. Dealers often sell gold at a markup above the spot price to earn a profit, usually ranging from 1% to 5%.
In essence, when calculating any losses, you must consider both the initial premium paid and the discount at the time of sale.
Whether buying or selling gold, you may incur shipping, storage, and transportation costs, in addition to basic transaction costs.
Aside from fundamental transaction costs, there may be other expenses involved. If you hold physical gold, you probably wouldn’t want to stash it away casually.
Hence, you may need to pay various storage and insurance fees to ensure proper safekeeping of your precious metal.
Many investors use gold to diversify the risk in their retirement investment portfolios through a Gold Individual Retirement Account (Gold IRA). It falls under the category of a Self-Directed IRA, which can be more complex than a standard IRA focused on stocks and bonds. Additionally, it may come with hidden fees and risks.
The general operation usually involves:
You contact a precious metal dealer specialized in gold IRAs. They help you connect with an IRA custodian to establish and manage your account.
Next, you fund the account and purchase gold from the dealer to deposit into your IRA account. The dealer will also arrange for a storage facility approved by the Internal Revenue Service (IRS) to hold your precious metals.
Since the entire process involves various service providers, you may need to pay various fees.
Below are some cost examples and rough estimates published by the independent third-party research and review platform Gold IRA Companies Bulletin:
Furthermore, your Gold IRA may still face early withdrawal penalties and tax constraints similar to a standard IRA.
The Internal Revenue Service typically categorizes physical gold as collectibles. Therefore, if you sell gold after holding it for over a year, you may need to pay up to 28% long-term capital gains tax on the profit based on your income. If sold within a year, it could be subject to taxation at general income tax rates of up to 37%.
Gold is a hedge asset, usually performing well during periods of economic, geopolitical, and financial turmoil.
However, regardless of how worrisome economic and market news may appear, such turbulence will eventually subside. When the economy recovers and investor confidence returns, the performance of gold tends to be less than ideal.
Moreover, there are other risks to consider. Gold does not pay interest or dividends. You only profit when the price of gold rises, and you can sell at a profit after deducting all costs.
The variety of costs involved can be significant, especially when using gold as a retirement savings asset. Additionally, the tax implications of gold investments are quite complex.
Overall, incorporating gold as a moderate defensive asset in a diversified investment portfolio may prove beneficial. However, it is not a foolproof investment that guarantees the safety of your wealth. After all, there is no investment in the world that is entirely risk-free.