How Long Should an Investor Keep Gold Holdings?

With the year drawing to a close, gold is shaping up to be one of the most attractive investment vehicles for investors. Several geopolitical factors coupled with investor fears of a war in the oil region have significantly increased gold’s safe-haven appeal in recent months and caused gold prices to rise.

A weakening dollar coupled with a fall in treasury yields also caused gold prices to rebound even further, and by Dec. 20, 2023, spot gold was holding steady at $2,033.92 per ounce while gold futures were trading at $2,048.40. In the wake of gold’s significant rebound, many investors are currently considering adding the precious metal to their portfolios to diversify and add some stability.

Many experts recommend holding gold for the long-term because it tends to grow at a slow and steady rate. Unlike assets such as government bonds, mutual funds and money market accounts, which can produce impressive returns over the short-term, gold tends to perform better over longer periods. Furthermore, since investing in gold bullion or coins usually requires a dealer fee on top of the spot-gold prices, it may take some investors time to recover financially from the investment.

Although investors can avoid the dealer fee by buying gold ETF shares rather than physical gold, the precious metal typically fares better as a long-term investment. For starters, gold can protect you from inflation. While fiat currencies such as the dollar lose their purchasing power when inflation rises, gold prices increase and decrease alongside inflation, giving your portfolio a buffer against inflation.

Consequently, investing in gold should be a long-term protection play meant to preserve your purchasing power in case of inflation rather than a short-term trade.

Aside from acting as a buffer against inflation, gold can also protect your portfolio against stock-market volatility. Investors with bearish sentiment typically sell off their riskiest assets and purchase safe-haven assets such as gold. As a result, the influx of gold demand causes gold prices to rise and produces gains for investors who are currently holding gold. These gains can help balance out potential losses investors may have made on other sections of their portfolio and reduce their overall losses.

Ideally, you should always have a safe haven asset like gold in your portfolio and steadily increase your holdings over time. The precious metal functions best when held for long-term positions so investors looking for high short-term returns should consider investing in other asset classes.

For a different type of investing in precious metals, stocks of gold extraction companies such as Royal Gold Inc. (NASDAQ: RGLD) can also be an option to consider if you have the stomach for the volatility of stock markets.

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