3 times beginners should invest in gold (and 2 times they shouldn't) (2024)

As a beginner investor, you may have heard that it's wise to invest in gold. And that's for good reason. Gold has a storied history as a safe investment asset and currency alternative that consumers, corporations and governments alike have leaned on throughout history.

While gold has a meaningful home in most investment portfolios, it's not necessarily the perfect asset for everyone at all times. And, determining when (and when not to)invest in gold can be difficult, especially for beginners.

So, when should beginner investors invest in gold, and when shouldn't they? That's what we will break down below.

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3 times beginners should invest in gold (and 2 times they shouldn't)

Here's when it makes sense for beginners to invest in gold (and when it may be beneficial to consider alternative investments).

3 times beginners should invest in gold

Here are three times beginner investors should consider investing in gold:

When they need to diversify their portfolios

It's not usually a good idea to invest your entire portfolio's value into a single asset or a group of like assets. For example, you shouldn't invest 100% of your portfolio's value into a single stock or group of stocks. Instead, it's typically best to diversify your portfolio. That means you should spread your investment dollars over a wide range of asset classes and individual investments within those classes.

As you diversify, it's important to consider how some assets will provide support for others.

That's where gold comes in. The price of gold tends to rise when traditional investments - like stocks and bonds - fall in value. So, by using gold to diversify your portfolio, you may be able to offset losses when one or more of your traditional investments falls in value.

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When inflation is a cause for concern

Gold is a longstanding inflation hedge. That's because gold's price tends to rise alongside the prices of consumer goods and services during inflationary periods. So, while other assets in your portfolio may suffer from inflation-related losses, inflation-related gains in gold could help balance those potential losses out.

When other market risks are present

There are several market risks to consider as you invest. Some of which are more timely today than usual. For example, election years, like this year, can lead to a change in leadership in the United States. That change in leadership could mean differences in corporate taxes, trade agreements and a wide range of other factors that play a role in corporations' ability to produce profits. As such, election years can come with market uncertainty.

Other risks are important to consider as well. For example, geopolitical uncertainty and Federal Reserve monetary policy decisions can have an impact on the stock market, too.

But, when market concerns are high, investors tend to look to gold as a safe haven investment. That means they buy gold as a way to protect their portfolios during times of uncertainty. That can push the price of gold up, producing profits for those who hold it. So, any time market risks are present is typically a good time to invest in gold.

2 times when beginners shouldn't invest in gold

Though there are times when beginners should invest in gold, there are other times when they should stay away from the commodity. Here are two times when beginners shouldn't invest in the yellow metal:

When inflation is minimal

Gold's price and inflation rates tend to go hand in hand. So, when inflation is minimal, gains in the price of gold will usually be minimal too. Therefore, beginners should generally steer clear of gold when inflation is low as other assets may produce better returns.

When their portfolio is too small for a safe gold allocation

It's important to limit your gold holdings to 10% or less of your total portfolio assets. And, with today's gold price being $2,318.60 per ounce, that price can be cost prohibitive. That's especially true for beginner investors with relatively small portfolios. In fact, if your total portfolio value is under $23,186.00 a single ounce of gold would push your allocation over the 10% threshold.

However, it's worth mentioning that fractional gold may be a way to overcome this issue. You could buy gold in quantities as small as one-tenth of an ounce with some dealers but you may have to pay a higher per-ounce price to do so.

The bottom line

Gold is an impressive asset for beginner investors to consider. But, there are times to, and not to, buy the precious metal. In particular, beginners should consider buying gold when they need to diversify their portfolios, when inflation rates are high and when other market risks are present. But, they should consider avoiding gold when inflation is minimal or their portfolios are too small to make a safe investment in the precious metal (one that represents 10% or less of their total holdings). Nonetheless, inflation is high and market risks are ever present. So, there's a high probability that gold has a meaningful place in your portfolio right now.