3 reasons you should invest in gold, according to the pros

Gold has been in the news a lot lately, with headlines touting everything from a gold rally to a gold rush. It's not surprising. Investors often turn to gold in times of economic turmoil, and there's no doubt we've been through our fair share of turmoil in recent years.

From interest rate hikes and high inflation to bank failures and talks of recession, there are plenty of reasons for investors to seek a safe place for their money. But why gold? And is it worth the hype it's been getting? We asked experts for their take.

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3 reasons you should invest in gold, according to the pros

There are many reasons to invest in gold. Here are three that experts often cite.

It can protect you from inflation

"One reason gold may be a benefit is because it could hedge inflation," says Stuart Boxenbaum, CFP and president of Statewide Financial Group. "Inflation doesn't seem to be going down anytime soon. One of the few assets you can own that goes up with inflation is precious metals, which includes gold."

Gold's value has been historically stable compared to other assets, and when inflation is high, gold is often worth more. This can make it a smart addition to your portfolio when the prices for goods and services are climbing.

"Investing in gold is a prudent way to protect your wealth from the adverse effects of inflation," says William Bevins, CFP, CTFA. "As an excellent option for storing wealth, gold has consistently proven to be a reliable and effective asset over the years. The worth of a dollar can be weakened by inflation, but gold provides you with an edge to combat that decrease in purchasing power."

There are many ways to invest in gold. Boxenbaum mentions gold IRAs as common ways to invest in gold as an inflation hedge.

"The good news with gold IRAs is that they can be set up directly with specialty companies that have custodians that are responsible for the safekeeping of the gold/precious metal and also the tax reporting (IRS) requirements," Boxenbaum says.

It diversifies your portfolio

Diversification is a strategy in which you spread your investments across several asset classes to maximize returns and minimize risk. This is especially valuable when the economy is turbulent.

"As the economy continues to shift and change, many investors are looking for ways to diversify their portfolios and protect themselves from potential losses," says Hanna Horvath, CFP. "Gold has been used as a currency and store of value for thousands of years, and it has proven to be a reliable hedge against inflation and economic instability. By adding gold to your investment portfolio, you can help protect your assets from market volatility and potential currency devaluation."

While gold's value may fluctuate in the short term, it's relatively impervious to market swings over the long term. As a result, it provides a counterbalance to more volatile assets, such as stocks.

"Gold typically behaves in inverse correlation to the stock market," Bevins says. "As a result, when the stock market takes a downturn, gold often increases in value. Investing in gold can be a great way to give your portfolio stability and diversity, offering some measure of protection against potential market events."

It does well when investor confidence is shaky

"Precious metals, like gold, typically thrive in environments rife with uncertainty, whether it's geopolitical or monetary," says Bevins. "Gold can become attractive during times of financial stress, like during times of low stock market confidence or troubles within the banking system."

We saw this recently following the release of the Fed's March minutes. After news of a "mild recession" hit, gold spot prices rose to $2,042.49 per ounce, according to Reuters — nearing the record high set in the 2020 recession. Gold futures also rose, to $2,056.90. 

In fact, Noah Damsky, CFA and principal of Marina Wealth Advisors, says, "Gold's best use is as a hedge against panic and fear rather than as a hedge against inflation."

"It can perform well in an inflationary environment," Damsky explains, "but it tends to do best when equity [stock] markets sell off quickly. Equity market sell-offs can come from a deceleration in growth, which is often joined by a lack of inflation, so it can perform best when there is a flight to safety and a tame inflationary environment."

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The bottom line

While experts may differ on gold's best use case, there is a common theme to their advice: Whatever the economic climate, gold can add stability to your investment portfolio. 

Of course, as with any asset, make sure you understand gold's pros and cons when determining if you should invest in it. "Investing in gold may not be for everyone," says Horvath, "but it's definitely worth considering as a smart and knowledgeable part of your long-term investment strategy."