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Should you own gold in your portfolio as a retiree?
One of the most recognizable precious metals in world history, there are numerous ads to buy and own gold.
But is the cost worth it?
This post is designed to explore if it’s worth owning gold as a retiree, considering how the price has performed, its volatility, its costs, and tax treatment.
Why Consider Gold?
Advocates of gold and precious metals point to the fact that gold has (conceivably) always had value.
For almost 100 years, the United States utilized a gold standard with its currency, linking the dollar to gold, until the early 1970’s when President Nixon decoupled the direct convertibility of dollars to gold.
As fiat currencies lose value through inflation, gold retains its intrinsic worth. It doesn’t rely on governments or central banks, making it appealing during times of crisis.
But for many, it’s the emotional aspect of gold that is compelling.
Fear of economic collapse, geopolitical instability, or runaway inflation drives many investors toward gold. It is perceived as a stable asset when everything else seems uncertain.
But where is gold’s value actually derived?
How Gold’s Price is Derived
Gold’s value is derived in its scarcity. Much like any commodity, a rare gem has value. With a dwindling supply and increasing demand, gold has gained in value in recent years.
The supply is fairly straightforward. New gold is mined, but it’s supply has been dwindling in recent years.That does not include all the existing gold currently in circulation.
But what about demand?
It shouldn’t be surprising, but demand for gold has generally seen major run ups during times of crisis:
In the late 1970’s and early 1980’s, we were experiencing times of stagflation (slow economic growth and high inflation). We had also been experiencing an oil crisis of 1979, driving uncertainty in financial markets.
After a relatively calm period in the 1980’s and 1990’s of steady stock market growth, gold lagged and underperformed for an extended period.
When did it pop next? During the 2008 Great Recession – leading to (at the time) all time highs. After experiencing some drops in the middle of the 2010’s, gold has since rebounded well.
The uncertainty of Covid and the economic downturn that resulted has led to a recent run up for gold. 2024 (and early 2025) have also seen gold’s returns skyrocket. Much of this is credited to declining interest rates, increased government lending, and Government purchasing of gold assets.
Gold Price’s Volatility
Despite its reputation as a safe haven, gold is surprisingly volatile.
As a commodity, its price is driven by supply and demand dynamics and market psychology, not by revenue or earnings growth like equities.
If we look back the last 30 years using Backtest by Curvo, we can compare both the performance and one measure of risk (standard deviation) of the S&P 500 to the Gold Spot Price.
While we have seen peaks and valleys in both the S&P 500 index & Gold’s Spot price, the S&P 500 has vastly outperformed Gold.
One way to measure the risk of the asset is to use standard deviation. Standard deviation measures the extent to which a stock’s returns deviate from its average return, quantifying the volatility and consistency of its performance. A higher standard deviation indicates greater price fluctuations and higher risk, while a lower standard deviation suggests more stable returns.
In the 30 year time frame measured, the risk is nearly identical, but Gold has a slightly higher standard deviation.
When Gold Really Shines
Gold thrives in times of low consumer confidence. When markets falter or economic fears dominate headlines, gold’s appeal grows. Conversely, during periods of high consumer confidence and market optimism, gold tends to underperform.
As shown in the chart above per this article, we can see that there is a particularly wide gap between consumer sentiment in the 80’s & 90’s. The figures flip at the beginning of the Global Financial Crisis, showing that the gold price lagged significantly when consumer sentiment is high, but increased dramatically with the sharp drop in consumer sentiment.
Tax Treatment and Costs of Gold
Gold’s tax implications can catch investors off guard. In the U.S., physical gold and gold ETFs are classified as collectibles, subject to a maximum capital gains tax rate of 28%. This rate applies regardless of whether you hold the asset for more than a year. You could also be subject to the 3.8% tax on Net Investment Income if your AGI meets that level.
Unlike Long-Term Capital Gains Rates, which are far more favorable, collectibles are subject to a higher tax rate.
This could also apply to Golf ETFs, but be sure to check the specific rules within your ETF if you own one. If you hold gold in a tax-advantaged account like an IRA, you would be subject to federal tax at your ordinary income level.
The Cost of Buying and Selling Gold
But taxes are not the only cost of owning gold.
Gold ETFs have gained in popularity in recent years, in which you do not have the physical gold in your possession. Rather, you own shares that are backed by gold or gold derivatives.
Costs can vary, but for example, iShares Gold Trust (IAU) has a sponsor fee of 0.25%.
But many would prefer to actually own physical gold, and there are costs on both the purchase and sale if you plan to buy physical gold.
Gold typically has a spot price, but there are also bid & ask prices. The spot price represents the true value of gold in a given time, but to purchase or sell gold will generally require a premium. Premiums can range from 5-10% on a purchase, and 3-5% on a sale. Therefore, any profit you make while owning gold should have this consideration as well.
Lastly, there is also a cost of storing physical gold. To store it safely, you may need to invest in additional materials, such as a safe, to store physical gold.
So…Should You Own Gold?
We do receive a fair bit of questions about gold, and they usually come when uncertainty in the markets exist.
As you can see in the charts above, gold does very well in times of uncertainty. It has retained value and has seen periods of positive performance when stocks are down.
But the taxability, costs of purchase, sale and ownership, the underperformance compared to the S&P 500 and the volatility of gold make the asset unattractive compared to other options from an investment perspective.