Should I invest in gold - and how?

Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

Anyone who decided to invest in gold in 2025 is likely to be pleased with their choice.

In a period when stock markets have proved highly volatile - including a peak-to-trough fall for US shares of 19% - the precious metal has soared in value. Gold is up more than 26% so far in 2025, sitting at a record $3,335 an ounce.

Its rise has added to the evidence that gold can perform a valuable diversifying role for investors, even if some will remain unconvinced - more on that below.

What is the case for holding gold? How much space should it take up in your portfolio? What’s the best way to invest in it? And why might you want to avoid it all together?

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Gold - does it protect against inflation?

For thousands of years gold has held an allure for humans and was used as one of the earliest forms of currency. This enduring appeal has helped it build a reputation as a store of value, continuing to hold it’s worth despite inflation.

That reputation may be justified over very long periods, but over shorter time horizons the connection between gold and inflation is less clear. There have been periods of many years, or even decades, when gold has lost value in real, inflation-adjusted terms. At other times it has easily outpaced price rises.

Where the case for gold grows is as a refuge during times of great uncertainty when investors are fearful of sudden shocks to economies. That perhaps explains its rise in response to the Trump tariffs, which threaten to tear up the decades old global trading order.

Is gold a good investment in 2025 and beyond?

The strong performance of gold so far this year means anyone looking to buy now will pay a high price - but will they be rewarded with even higher prices in the future?

The uncertainty that has driven gold prices appears unlikely to disappear. Yes, tariffs can be reversed - and the US President has performed wild changes in direction before - but questions about the strength of the US economy remain. Moreover, gold’s status as a hedge in an uncertain world appears reinforced after the events of this year.

It’s a point made in our latest quarterly Investment Outlook: “Many investors are starting to see the precious metal as a key component of a balanced portfolio. That looks sensible. Gold is traditionally viewed as a safe haven asset, and it performs well at times of heightened uncertainty. It broke through $1,000 an ounce during the financial crisis and through $2,000 at the time of Covid. There are good reasons to believe it will stay above $3,000 now and Goldman Sachs recently upgraded its yearend forecast to $3,300 an ounce.”

As always, past performance is no indication of future returns.

• Read the latest Investment Outlook

How much gold should I hold in my portfolio?

For most investors, gold is only ever going to be a minority position within their portfolio - but that still leaves a wide range of possible allocations. For investors whose main objective in holding gold is to hedge against extreme uncertainty, a common allocation is between 5% and 10%. Any less than that is unlikely to make the difference you are looking for when volatility strikes.

As with any asset you invest in to achieve diversification in your portfolio, the higher the weighting to gold, the larger the potential drag when growth assets like shares are performing well.

What is the best way to invest in gold? ETFs or gold miners

Investing in gold does not usually mean purchasing and owning actual bars of gold. Rather, it means buying financial instruments which offer exposure to movements in the gold price.

The most direct way to do this is via ‘exchange traded funds’ (ETFs) which are listed on stock exchanges and bought and sold like a share. The best will mirror movements in the gold price very closely and do so for a low charge. These are often ‘physical’ gold ETFs, meaning they are backed by actual gold held in vaults.

Alternatively, some investors prefer to gain exposure to gold by investing in the shares of gold mining companies. It is common to do this via a fund that specialises in gold miners.

Each method of investing in gold produces different results - even if both are influenced to greater or lesser degree by the performance of gold itself. Gold miners tend to produce more volatile performance - meaning they will at times do better than the gold price, and at other times worse.

To understand why requires some insight into what moves the price of gold mining shares. Gold prices are certainly one factor - a rise will automatically boost the earnings at the gold miners. In fact, a rise in the gold price tends to have an amplified effect on the profits at gold miners. That’s because miners have significant fixed costs, so any rise in the price they can sell their gold for equates to a larger percentage rise in their earnings.

Consider this simplified example. A miner produces $100 worth of gold by expending costs of $50 - leaving a profit of $50. If there is a 50% rise in gold prices, the amount it can sell the metal it produces for rises to $150 - leaving $100 profit after its costs have been deducted. Therefore a 50% rise in the price of gold equates to a 100% rise in its profits.

That mathematical effect is often the reason investors are persuaded to invest in miners rather than gold itself.

You can see this reflected in the chart below, which shows the performance of the Ninety One Global Gold fund - a popular fund of gold mining shares - with the iShares Physical Gold ETC - an exchange traded fund which aims to track the actual gold price - over ten years. Both funds feature on our Select 50 list of favourite funds.

It shows that the Ninety One fund has been more volatile but has also produced periods of much stronger returns than physical gold.

But it doesn’t always work. The chart below shows performance over a shorter period - just three years. Over that time span, the gold ETC has been both more stable and higher-performing.

The explanation is that miners have faced other factors adversely affecting their performance during that time. The widespread inflation we have experienced since 2021 has driven miners’ operational costs higher, eroding profits in the process. Higher interest rates have made borrowing costs more expensive as well, while higher demand for physical gold among central banks has pushed gold prices higher but has not extended to shares in gold miners.

For investors looking to use gold as a diversifier from shares, a physical gold ETC is likely to best fulfil the brief. Those looking to outperform gold over the long term may see sense in backing gold miners. It is possible, of course to split your gold allocation between the two.

More on Ninety One Global Gold

More on iShares Physical Gold ETC

Before you invest - remember that some investors will never hold gold

For every investor who sees the sense in using gold in their portfolio there’s another who has sworn to never hold the precious metal. And it’s not a niche view - Warren Buffett, the world’ most famous investor, has put his aversion to gold on record saying that gold ‘doesn’t do anything but sit there and look at you’.

Unlike companies, the shares of which are so beloved by Buffett, gold produces nothing. No income for shareholders and no profits than can be invested to make a business more valuable. When buying gold there is only one way to gain - by someone else being willing to pay more for it than you did.

• Read: What Warren Buffett says - and does - when markets fall
• Read: 4 charts every investor needs when markets fall
• Read: How I’ve learned to love bear markets

Past performance is not a reliable indicator of future returns
Source: Morningstar from 31.3.20 to 31.3.25. Excludes initial charge.