The Golden Question: Assessing the Surge in Gold Prices and Its Place in Your Portfolio

Gold prices are dominating headlines, surging in recent months and even hitting a new one-year high. In fact, the price recently passed $4,000, marking a 51% increase in just 12 months (as of October 9, 2025). When an alternative asset like gold sees such a dramatic rise, investors often ask: Is it time to buy? Here are some advantages and disadvantages for investors to consider before making any decisions.

What is Driving the Current Gold Surge?

The recent spike in gold prices is multifaceted, reflecting broad global anxieties. Concerns about inflation and the U.S. dollar’s prospects have boosted gold. A weaker dollar makes it cheaper for overseas buyers to purchase dollar-denominated assets such as gold.

Geopolitical shocks, such as the war between Russia and Ukraine and the Israel-Hamas conflict, are also factors. Gold prices often rise when investors are worried about potential uncertainty.

Furthermore, gold is currently experiencing a broad speculative fervor. Some recent buyers are more attracted to rising prices that they hope will continue rather than inflation fears.

The Allure of Investing in Gold

Many of the reasons for gold’s recent strength are also why investors are attracted longer term. 

A Financial Haven: Gold is traditionally used as a haven — an asset that maintains its value during periods of market volatility or economic uncertainty. It helps to cushion your portfolio from instability.

Betting on Declining Rates or Currency Devaluation: Gold becomes more appealing when interest rates fall, as lower rates diminish the returns expected from safe government bonds. Gold should also hold its value during periods of depreciation in the U.S. dollar. 

Disaster Protection and Diversification: Gold tends to rise when investors worry about the economic outlook, helping offset possible declines in stocks during market turbulence. When you need diversification the most, gold has historically proved its worth. For example, during both the 2000–2002 and 2007–2009 bear markets, stocks declined over 45%, while gold rose by over 17%.

Disadvantages and Risks Associated with Investing in Gold

Despite the current excitement, gold carries significant risks and historical shortcomings that warrant skepticism, particularly for long-term investors:

Performance and Volatility: Before the recent rally, gold’s long-term returns were roughly in line with cash, while its risk profile was similar to stocks. Indeed, gold has had historical declines of over 40%, which is like the downside risk of the stock market. These characteristics — low returns and high risk — are the opposite of what investors need. Also, gold has not always proven reliable as a hedge. From early March through late October 2008, gold fell 28%, while the stock market declined 24%. There have been other periods as well when stock and gold fell in tandem. 

Lack of Income and Interest: Gold generates no earnings and investors do not earn interest or regular payouts for holding it. In fact, unlike stocks which generate on-going earnings, there is no cash flow from gold that forms a basis for valuation.

Inflation Correlation is Low: Despite popular wisdom, gold has not consistently worked well as protection against inflation. The correlation of gold’s real returns with inflation (as measured by the Consumer Price Index) is quite low.

Costs and External Risks

High Costs of Physical Ownership: For those interested in holding physical gold (bullion), the price paid is significant due to high commissions. It is not unusual to pay 10% more than the spot price on a purchase and accept a 10% discount when selling, meaning gold must rise 20% just to break even. Storage or insurance costs may also apply.

Tax Disadvantage: Capital gains realized on physical gold (bullion) held over one year are taxed as collectibles. The tax rate is therefore 28%, which is generally higher than the long-term capital gains rates applicable to most other investments.

Government Intervention Risk: The government has previously confiscated gold (in 1933, and it remained illegal to own until 1975) and has historically fixed its price, posing a risk to investment.

While stocks, real estate, and high-quality bonds have historically provided better long-term returns, the case could be made for a very small amount of gold in an investment portfolio. Though it would be hard to justify an allocation of more than 5%. Given that gold is volatile, pays no dividends, and lacks intrinsic valuation factors, we generally believe investors are better off leaving gold alone. If you are seeking inflation protection and asset diversification for a long-term portfolio, there may be better alternatives. To learn more about Armbruster Capital Management and our approach to investing contact us at (585) 381-4180 or info@armbrustercapital.com. You can also schedule a time to talk with one of our advisors through our website.

Disclaimer:

Armbruster Capital Management’s views as portrayed in this post are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Investing involves risks; the value of your investment will fluctuate over time, and you may gain or lose money. Past performance is no guarantee of future results.