Investors with precious metals in their portfolios may well feel like they have the golden touch right now. That's because gold has come close to all-time high prices since the crisis began, and while stocks are still down from earlier this year, gold is earning investors rich returns.
"Gold has been viewed as a safe-haven investment for literally thousands of years," says Michael Wittmeyer, CEO of JM Bullion, an online precious metals dealer. "When [bad] things happen, investors tend to pile into gold."
Gold prices reached an all-time high of $1,773 per ounce in July of 2012. But this year, they've almost breached that ceiling. As of the beginning of June, gold is selling for around $1,750 per ounce — an increase of more than 15% since the middle of March. It's also up 45% over the past five years. Two decades ago, at the beginning of June in 2000, gold was selling for only around $256 per ounce, and current prices reflect an increase of 535% since then.
Experts say there are two main reasons why gold has become the year's hottest investment.
Gold prices are soaring because of "the fear induced by Covid," Wittmeyer says, and because "central banks are injecting a lot of money into the system, and governments are ramping up spending," he says.
"People look at gold as inflation protection. There's only so much gold out there, and it's really hard to get it out of the earth, so when there's more dollars out there, gold tends to do better" as a store of wealth, he says.
Video by David Fang
It's the "store of wealth" aspect of gold that attracts many investors, who are concerned that inflation will eat up the value of cash over time. And with interest rates currently at 0%, even stashing money in a savings account is likely to lose you money over time.
"Gold is seen as a store of value and an alternative to government-issued currencies," says David M. McInnis, principal and co-founder of investment advisory firm East Paces Group in Atlanta. "The gold supply isn't as easily manipulated — you don't need to worry about the government printing up a bunch of gold."
Given that gold prices are currently at all-time highs, it may seem counterintuitive to add it to your portfolio. Some analysts are bullish that gold could continue to increase in value throughout 2020, though, perhaps even breaking through the $1,800-per-ounce mark.
A decision to invest in gold or other precious metals should preferably come after a discussion with a financial professional. Because gold can be a very volatile investment, it's not for everybody.
McInnis says that he would recommend against investors dedicating a significant portion of their portfolio to precious metals, though he understands the appeal. "Gold is not something we typically recommend, but it has a long history of being a hedge," he says.
Still, McInnis and others say investors shouldn't look to invest in gold until they have covered all of their other financial bases — which would include priorities like saving up a substantial cash emergency fund and funding your 401(k) and retirement accounts. Even after that, experts say gold should only make up a small portion of your holdings, which may include physical gold (bars, coins) or investments such as ETFs like GLD.
"For your typical investor, 5% to 10% would be OK for gold, but not more than that," says Jason Lambert, the president and CEO of Northwest Financial & Tax Solutions, near Portland, Oregon.
The relatively small allotment suggested by Lambert is, again, because gold can be so volatile and tends to move inversely with the stock market. A little bit of gold may actually be a good investment to help smooth out your investment risks, but it's important to be aware of the risks involved, and what can influence the value of your holdings.
"Remember," says Lambert, "when the market is fearful, people tend to buy gold."
More from Grow: