Sign In or Create Account

Knowledge Center

What are the Risks of Investing in Gold? 

While investing in gold has very few disadvantages, there may be some risks. This Answer will break down some of the most common risks and provide initial steps to mitigate them. 

For centuries, the warm glow of gold has been seen as a light in the dark acting as a hedge against inflation, but what about the risks associated with investing in gold? Some of the factors to be aware of when considering a gold investment include price volatility, income potential, and storage costs. 

Risks Associated with Investing in Gold 

Gold Price Volatility 

Volatility around the price of gold and other precious metals is subject to the impact of speculative activity. Speculative investing can have short term influences on the gold spot price based on factors like geopolitical events, market sentiment, and economic news.  

While gold is subject to these influences and others that may exert short term influences on its spot price, it is more stable than most other assets during economic crisis. This is due to its perception as a hedge against inflation. As more investors turn to gold in times of uncertainty, its price tends to stabilize.  

Mitigating price volatility may involve multiple strategies, and each of these can carry its own risk, though most of these additional risks are minute. Dollar-cost averaging (DCA) helps mitigate pricing fluctuations by investing a set amount of dollars at a regular frequency.

It is worth remembering that factors like market sentiment can impact the gold price and to avoid making investment decisions based on emotions of the day. By setting a dollar amount and frequency, doll-cost averaging helps investors take full advantage of market fluctuations without giving in to emotional purchasing. 

Gold Storage Fees 

Storing gold at home increases the risk of theft. Some may argue that storing gold at home invites theft if anyone is aware of your portfolio. Mitigating this risk involves third-party storage options or an insurance policy fraught with complexity and high costs. 

Paying to store gold is not free, and it is rarely cheap. Some businesses charge upwards of 0.7% per year to store gold, which may be prohibitively expensive for many investors.  

There are ways to beat that price point with organizations like OneGold, which only charges 0.12% annually for gold storage. This would incur $120 per year for a $100,000 gold portfolio. 

Counterparty Risks 

One of the risks of storing gold and precious metals with a third party is that presented by counterparties. If a third-party storage facility closes, is not compliant with laws, or has poor operational history, it may not be able to safely store your gold. Mitigating this risk can be simple but requires thorough attention to detail and due diligence. 

Read user reviews and ask questions about regulations, compliance, and insurance to mitigate this risk. 

Gold Income Potential 

One of the final risks of investing in gold is that gold does not generate earnings the way stocks and bonds do. Gold returns can be highly profitable, but the price must rise, and gold must be sold to generate those returns. Since the price of gold tends to grow slowly, there is potential for a lag in its price performance compared to other assets. If your goal is to maximize your returns over a short timeline, gold may not be able to meet your needs. 

Adding gold to an investment portfolio can help diversify risk since gold does not always move in the same direction as other assets like stocks and bonds. As gold is considered a tier one asset, it is in the most stable category of investment classes.  

Quick Guides to Investing

Step 1:

Why Buy Physical Gold and Silver?

If you are concerned about the volatility of the stock market, you’re not alone. The extreme highs and lows of the stock market often lead investors towards safe-haven assets, like bullion. Historically, the Precious Metals market has an inverse relationship with the stock market, meaning that when stocks are up, bullion is down and vice versa.

Step 2:

How Much Gold and Silver Should You Have?

This question is one of the most important for investors to answer. After all, experts suggest limits on how much of any types of investments should go into a portfolio. After deciding to purchase and own Precious Metals and considering how much money to allocate, one can then think about how much and what to buy at any point in time.

Step 3:

Which Precious Metals Should I Buy?

With the frequent changes in the market and countless Precious Metal products available, choosing investments can be difficult. Some want Gold or Silver coins, rounds or bars while others want products that are valuable because of their design, mintage or other collectible qualities. Also, collectors may shop for unique sets and individual pieces for their collections.

Step 4:

When to Buy Gold & Silver

After considering why, how much, and what Precious Metals products to buy, an investor’s next step is when to buy them. This decision requires an understanding of market trends and the impact of economic factors on precious metal prices.

Explore More On APMEX

Silver

Platinum

Rare Coins