Should you buy gold when prices are high?

Amid rising interest rates and fears of a potential recession — not to mention persistent inflation — gold prices are faring well.

In early April, the spot price of gold inched above $2,000, skating near all-time high prices set in 2020 during the peak of the pandemic. After a few weeks of ups and downs, gold prices have steadily risen in the days following the Fed's latest rate hike announcement earlier this month. And even though gold prices are high today, some experts believe they may still have a ways to go before reaching a new peak. 

But what do higher gold prices mean for investors considering adding gold to their portfolios? Here's what to know about buying gold when it's gaining value.

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Should you buy gold when prices rise?

One of the benefits of investing in gold is that it makes a smart addition to your portfolio in any economic climate. Gold is often viewed as a hedge against inflation, because it offers stability against the value of the dollar. When inflation brings the dollar's price down, gold prices often stay steady.

But typical investment advice will tell you that the best time to buy an asset is when its price dips. So what makes gold useful even when it's more expensive? 

For one, gold investors don't typically look to it as a source of growth. Gold makes a great diversifier for your portfolio because it tends to remain stable when other markets fall. Take last year, for example. While the S&P 500 was in the negative over the course of the year, gold prices rose — not by a large margin, but they were up overall.

Gold may not offer the same long-term gains as traditional investments, but it can help offset periods of downturn, so you can better withstand losses. That's why investing during any environment — regardless of whether current gold prices are up or down — depends on your ultimate goals.

"A small allocation to gold and other precious metals can provide some good diversification benefits as it doesn't always move in sync with a traditional stock/bond portfolio," says Tyler Gray, CFP, managing director at SageOak Financial. "Whether or not that is the right move for any particular client will come down to their goals, values, and investment philosophy."

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How do you invest in gold?

There are several ways to invest in gold today. 

You might be most familiar with physical gold, whether in the form of gold bars or coins. However, this can be one of the most costly methods, since it also requires you to store it. Other popular gold investment options are more akin to stock investing. Gold IRAs can offer the same retirement advantages of typical IRAs, though you'll need to work with a custodian to ensure your investment adheres to IRS regulations. Gold ETFs are another option. They typically either track gold prices or invest in gold mining companies, so either way you don't need to worry about storing any physical bullion.

If you're considering a gold investment, make sure the amount you choose fits with your overall long-term investment plan. Many experts recommend investing no more than 5% to 10% in alternative assets like gold, so you can allow the rest of your portfolio to benefit from the potential long-term gains stocks and bonds offer. If you're unsure, you may want to speak with a trusted financial professional about your options.

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The bottom line

Gold prices are on the rise, which means now can be a good time to add the precious metal to your investment plan. At the same time, one thing that makes gold unique is its ongoing value no matter the economic climate or price fluctuations. 

If you're looking for a way to hedge against today's high inflation rates or guard your portfolio against an upcoming recession, putting a portion of your money in gold could be a good option. Over the long term, having that stability can help you bear whatever swings future markets bring.