The Top Reasons To Buy Gold: A Safe During Uncertainty

Due to the war in Ukraine, a lot of people have been asking me whether to buy gold now. Therefore, I thought I’d revisit this post that I write a while ago and have updated today.

Before you buy gold, make sure you understand the basics of commodities. A commodity is typically a resource that the market treats as equivalent or pretty close to it regardless of who produced it. In other words, commodities are highly fungible.

Top Reasons To Buy Gold

Gold is one of the most popular commodities that investors track and trade. Other commodities include crude oil, natural gas, soybeans, coffee, corn, wheat, sugar, rice, and iron ore.

The price of gold and other commodities is usually determined by actively traded spot and derivative markets. How widely available a commodity is also impacts its price and profit margin. You can easily follow the SPDR Gold Trust (GLD) if you want to buy gold or just monitor how it's trading.

The interest in buying gold has increased due to inflation and Russia's invasion of Ukraine. As a result, gold prices have begun to soar. Below is the latest chart of gold, silver, and platinum prices since 1970, inflation adjusted. Gold is now trading about $2,000/oz.

Latest gold prices from 1970 to 2022

Before You Buy Gold, Understand Where It Comes From

Although you may be hyped up to buy gold now that it's surged higher, please take a step back for a moment.

Imagine a tennis court.

Now, imagine a cube with sides that are slightly shorter than the length of a tennis court. No, this isn't some sort of New Age meditation. This is, in fact, a way to visualize all the gold that has ever been mined since the beginning of time.

Most people are shocked to discover the relatively small amount of gold that exists above ground. Indeed, if all that gold was evenly divided between each person on Earth, each individual would only be entitled to a mere 23 grams.

Now let's examine some of the best reasons to buy gold, such a rare chemical element that has captivated humans for thousands of years.

The State Of The Economy Impacts The Desire To Buy Gold

It's important to know the state of the economy before you buy gold. Is the country at the brink of a recession that could bring the world to its knees? Or is the economy in a raging bull market with no end in sight?

Everything is interconnected.

During good times when the global economy is healthy with low levels of inflation and low unemployment rates, gold prices tend to stay flat. On the other hand, rocky times and recessions tend to make gold prices rise as demand increases.

People have a tendency to run to buy gold when the stock market is crashing as a hedge against uncertainty in the economy. Gold is known for being relatively dependable in the darkest of times.

Investors also buy gold as a hedge against inflation. Gold prices tend to rise when the dollar is declining and inflation is going up. In addition, you can't dilute gold, so it's good at retaining value.

Personally, I think the best hedge against inflation is real estate. Real estate rides the inflation wave due to rising rents and rising real estate prices. Further, real estate provides utility, unlike gold. As a result, I'm a heavy buyer of real estate in this inflationary environment.

Gold prices affect the countries that import and export it. In addition, gold is commonly used to measure the value of a currency. Thus, the value and strength of gold impacts global trade and foreign exchanges.

Reduce Volatility & Protect From Inflation

You can help dampen your portfolio's volatility with with gold due to its ability to withstand inflation and times of uncertainty. Indeed, in the years since World War II (when inflation has affected the U.S. most severely), the price of gold has risen.

Thus, the decision to buy gold can be viewed as a shield to protect oneself against the ever-weakening dollar, as well as unforeseen economic crises. Unfortunately, there is a chance that World War III could break out due to the Russian invasion.

How To Buy Gold

There are a plethora of avenues available for those looking to buy gold, so tailor your purchase to suit your specific needs and comfort level. Purchasing physical gold is of course a time-honored option.

Others prefer to invest in gold ETFs such as GLD, gold mining companies, or gold mutual funds to avoid the logistics of storing, moving, insuring, etc. There are possibilities for all budgets and levels of financial expertise. Just watch the fees when buying a gold mutual fund.

Personally, I find that simply buying GLD and rare gold watches are the easiest methods to buy gold. In my past life, I used to buy and sell rare watches for fun. The prices of rare watches keep going up. Even basic steel Rolexes have seem strong price inflation.

There are even Gold IRAs for those who are crazy bullish about gold. Gold IRA companies can help you convert your paper assets into gold bullion and coins using a process known as a gold IRA rollover. But I wouldn't bother.

Slow Production + High Demand = Higher Gold Price

Gold production growth can't keep up with demand. Gold production increased at the rate of 1.9 percent for the first 90 years of the 20th century. But, in the past 20 some years, it has grown at a mere 0.7 percent per year.

Meanwhile, demand to buy gold continues to grow worldwide, especially in China and India. There is an insatiable demand for gold by Indians especially. Further, the Vietnamese love gold as well. But it is really the demand out of China and India that is driving excess gold demand.

With gold's history of counter-cyclicality coupled with strength during uncertain times, the desire to buy gold has increase. At the time of this post update, the price of gold has come down from its peak. So perhaps you could start owning a tiny piece of that golden, tennis court-sized cube.

Performance Of Gold ETF GLD vs. VTI, Vanguard Total Stock Market Index Fund ETF

Below is a 5-year comparison chart between the gold ETF GLD vs VTI, the Vanguard Total Stock Market ETF. VTI had been outperforming since late 2020. But GLD is starting to outperform again in 2022 due to all the uncertainty.

Overall, having some gold in your portfolio isn't a bad idea as a capital preservation investment. Look at how GLD held up during the March 2020 stock market crash.

Gold GLD versus Vanguard Total Stock Index

More Recommendations To Build Wealth

1) Invest In Real Estate During Times Of Uncertainty

Stocks are volatile while gold generates no income. Therefore, if you want to dampen volatility, diversify your investments, boost passive income, and build wealth at the same time, real estate is an attractive investment.

My favorite real estate investing platform is Fundrise. With over $2.5 billion in assets under management and over 210,000 investors, Fundrise is the leading, vertically integrated real estate platform today. Investors can invest in their diversified real estate funds with as little as $10. 

Fundrise primarily focuses on single-family, multi-family, and build-to-rent properties in the Sunbelt. With lower valuations, higher yields, and strong demographic shifts, Fundrise investments are in the sweet spot of a positive long-term trend.

The combination of rising rents and rising capital values is a very powerful wealth-builder. I've personally invested $810,000 in private real estate across the country to take advantage of lower valuations and higher rental yields.

2) Manage Your Finances In One Place

One of the best ways to become financially independent is to get a handle on your finances by signing up with Personal Capital.

They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances.

Now, I can just log into Personal Capital to see how my stock accounts are doing and how my net worth is progressing. I can also see how much I’m spending every month.

The best tool is their Portfolio Fee Analyzer which runs your investment portfolio through its software to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was paying! They also have the best Retirement Planning Calculator around.

There's no better free tool online to help you track your net worth, minimize investment expenses, and manage your wealth. Why gamble with your future?

3) Read The Best Book On Investing

If you want to become a better investor and achieve financial freedom sooner, purchase a hard copy of my new book, Buy This, Not That: How To Spend Your Way To Wealth And Freedom. The book is jam packed with unique strategies to help you build your fortune while living your best life. 

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After spending 30 years working in finance, writing about finance, and studying finance, I'm certain you will love Buy This, Not That. Thanks for your support!

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The Top Reasons To Buy Gold is a Financial Samurai original post. I've been writing about personal finance since 2009 and used to work in finance for 13 years. If you want to read more about investing and building wealth, you can sign up for my free weekly newsletter.

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34 thoughts on “The Top Reasons To Buy Gold: A Safe During Uncertainty”

  1. “Russia can sell gas to the West for rubles and gold, and to friendly countries such as China or Turkey for national currency or bitcoins. This was stated at a press conference by Pavel Zavalny, Chairman of the Energy Committee of the State Duma, who was elected to the federal parliament from Yugra.”

    USTs won’t be reserve asset any longer

    Eurasia will settle trade BoP with gold.

  2. Given the risk in the market and current state of world affairs, is now a good time to buy gold?

  3. Shaylee Packer

    As you mentioned, gold will keep a steady value even in times of economic crisis. My father is thinking about starting to buy gold, and wants to make sure that he does it right. I will have to share this article with him, and see what he thinks.

    1. just stay away from GLD and the ETFs

      those are unallocated paper gold and will go to zero once Russia redenominates oil in gold

  4. I also suggest hedging portfolios with volatility ETFs (which go up when the market goes down). you can also trade these short term for a quick profit (if timed correctly by looking at world markets/us news/etc.)

    some volatility stocks: VXX, TVIX, VXZ

    question for you guys: what do you think about buying high beta stocks for the short-term when the market has been down for 3-4 consecutive days?

  5. Natalie @ Mango

    I’m with you, Untemplater. I haven’t bought gold myself, but my own parents sold some not too long ago– but unfortunately it was just before gold became the new black and its value shot through the roof. I know people say that gold has remained pretty stable over the years in its value, but it seems like it is suddenly all the rage to me. I get a little apprehensive when it comes to “trendy” buying. How do we know that gold will still be “in” next year? In five years? What makes everyone so confident in gold?

  6. Does gold compound? Does it produce anything productive? Or am I just looking for the next bigger fool than me to buy at a higher price? Are people buy golding just because it is going up in price? Fear is running high, yet inflation is near zero. Is Buffett right when he says: “You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what that’s worth at current gold prices, you could buy all — not some — all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?” Even in the world of fiat currencies is gold investing just a speculation in one class of commodities? Or is it one of the currencies of the Apocalypse– gold, guns and groceries?

  7. Sunil from The Extra Money Blog

    never understood it either . . . what is a gold owner going to do with gold when paper money becomes worthless? eat it?

      1. Haha. Why would you even stick around if it came to bartering? You’re just asking to be robbed if you’re the dude that pays for his sliced bread with gold nuggets.

  8. When the gold mining companies start hedging their inventory, start looking for a top. Until then gold is a buy.

  9. I don’t “get” buying gold. It doesn’t produce anything…you are simply buying it with the hope that someday someone will buy it back from you for more money (maybe that is different if you buy gold bars, but that the premise of the etf).

  10. I’d say gold does better during times of financial uncertainty and deflation… from 1980 to 2000 god dropped from $800 per OZ to $250, while inflation was going up as well as salaries…

    I guess if you have extra money then go ahead and buy gold. Buy in Asia because the transaction costs are very low (spread of less than 1% between buying and selling bars).

    But unless you buy low and sell high you have not made a profit.

    I really question any statement of someone buying 30 years ago, selling now, and making a profit.


  11. The problem with gold, as I see it, is that the entire potential for appreciation is solely based upon demand of other investors, making it ripe for a speculative bubble. Tulips anyone?

    1. It’s definitely a speculative asset in the short run. But in the long run, it just seems like a homerun, just like investing in emerging markets in the long run seems like a homerun. The short runs can last a loooong time though…

  12. When investing in physical gold, which is better to buy? Gold coins or gold bullion? Is there any difference in terms of which one holds up value better?

      1. tl;dr: Coins cost more up front and *might* be worth more when sold.

        Little of this, little of that: coins typically have higher premiums over spot price vs. bullion. On the other hand, coins sometimes also enjoy aftermarket price appreciation (rarity, collectibility, etc.) In addition, “real” coins (minted by a government, not a private mint) are a WHOLE lot harder to counterfeit than bullion.

        On the other hand: Bullion you can usually buy at a lower premium over spot price (there’s just less manufacturing involved). Bullion is available in a wider range of weights, from 1g – 1kg (up to the monster 31kg silver bars used to settle commodities contracts). Bullion’s easier to sell so long IF it’s assayed/tested for purity. Some smaller bars (1g-10 oz aka 311g) come from the refiner in tamper-proof packaging with an enclosed assay, which should ease resale.

        Personally I think coins are for collectors, and bullion is for investors. YMMV

        Disclaimer: I write copy for a precious metals ecommerce company, BullionMax, so I had to research these topics.

  13. Ben @ BankAim

    I wish I had more gold! I was up in Fairbanks about 2 months ago and visited a gold mine (The Eldorado Gold Mine), you have to visit that place if you are ever up in Alaska. Anyways they give you a tour of old gold mines and how they used to do it. Then they show you their mining system and how they find gold. Then they give you a bag of dirt and let you go ‘pan’ for gold yourself. Everyone who leaves that place finds gold! Of course my wife and I together had about 32 grams and they said at today’s price (this was back in early August), that it would have been worth about $40.

    I am surprised that all the gold divided between everyone on earth would only equal 23 grams?! That’s not much at all!

      1. Ben @ BankAim

        Yeah! They make it seem so easy and the system they have is sweet! But then they tell you how many people have tried and failed with mining and it seems the odds are heavily stacked against anyone. Look on google, you’ll find a bunch of gold mines for sale in Alaska ;) You can start anytime.

  14. The reasons you gave are all good, but wasn’t the inflation-adjust high for gold (around $2400 in today’s dollars) about 30 years ago? Anyone who bought gold then might be able to put a bigger number on it now but they can’t buy a bigger tennis court with it.

    Coincidentally I just wrote a post commenting on an article about price drops that still leave something at an expensive level. The chart seems to show that anyone buying before August would be better off than they would today.

    If you could use gold to buy (or build) a time machine and then go back to 2000 and buy some really cheap gold you would be doing well :)

    1. Not sure, but inflation-adjusted pricing is always a little tricky. All I know is that I thought gold was a sell at $1,300 and it went to $1,850, and now I’m wondering whether it is a buy at $1,580! Who knows really. Commodities should go up over the long run as supply is limited.

  15. Some good and fair points. Transaction costs are high. These need to come down, like they need to in real estate. But when they do, prices just go up as they were already baking in the costs.

    So much is marketing no doubt.

  16. Untemplater

    I haven’t invested in gold before but I can see the appeal. My friend’s dad bought a bunch of gold coins about 30 years ago and made a nice profit when he finally sold them last year. I don’t think I’d ever bother with physical gold but buying some market exposure is now on my radar.

  17. I don’t invest on anything other than my personal bank. It is the only investment vehicle I found that is steady and guaranteed.

    1. Hah! Then you are in the cash is king camp. Sounds good to me. I have about a third of my net worth in cash returning 4% on long dated CDs. The problem is, I don’t know what to do with my new cash now. You?

  18. I own gold and think that this might be a good opportunity to buy some. I doubt that the dollar is getting any stronger. Besides, if it does, that just means that my energy costs decrease and import prices go down.

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