3 Pros and 2 Cons Of Buying Gold To Build Retirement Savings
Written by
Marc Guberti
Edited by
Amen Oyiboke
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Gold is an essential resource for society that goes well beyond jewelry. It’s in your computer, refrigerator, car, smartphone, and medical equipment. The precious metal is also one of the top-performing assets this year. So far, gold is up more than 20% year-to-date, while the S&P 500 and Nasdaq Composite remain down year-to-date.
Can the gold rally continue, and does it make sense for your retirement savings? These are the pros and cons to consider before buying gold to build your retirement savings.
Pro: Gold Will Benefit From Tariffs
Tariffs lead to inflation since they boost the cost of various products and services. Inflation is good for gold since the precious metal is an inflation hedge. There is a limited supply of available gold. As the purchasing power of the U.S. dollar goes down, more dollars are required to buy the same amount of gold.
Equities don’t perform well amid high inflation, as we saw in 2022. That year featured record inflation and the collapse of many growth stocks that performed well during the pandemic. Any tariff escalations will bring forth more uncertainty and can push gold to new highs.
Con: Any Trade Deals Will Hurt Gold
Gold dropped by 2% on the day President Trump announced that a trade deal was in place with the United Kingdom. Trump also suggested that the stock market presented a buying opportunity. This good news for financial markets caused stocks to soar, but gold was a big laggard.
If the U.S. reaches deals with most countries, gold can endure a correction. It seems like countries are willing to play ball with the president and look for ways to get out of the retaliatory tariffs. That’s not good news for gold.
Pro: Gold Did Well During Trump’s First Term
Research from S&P Global shows that gold gained nearly 50% during Trump’s first term. Some of those gains came in 2020 when the Federal Reserve initiated a historic economic stimulus during the pandemic.
While it’s not a guarantee that gold will deliver positive returns during Trump’s second term, it is encouraging to see that the asset ended in the green.
Con: No Cash Flow
A major disadvantage for some aspiring retirees is that gold does not produce any cash flow. Some investors accumulate dividend stocks and hope that they can live on the cash flow when it’s time to retire.
Gold doesn’t offer that opportunity, and while you can buy gold mining ETFs, you’re moving away from gold with those investments. If you invest in gold mining companies, the financial performance of those companies becomes just as important as changes to the price of gold.
Pro: Gold Is an Essential Resource
Gold is a vital part of many industries, which ensures strong demand. Furthermore, it’s been used in civilizations for thousands of years. These dynamics make gold less risky than high-flying growth stocks that may endure sharp corrections in the future.
Gold’s demand will grow as the economy grows. Investors who are bullish on the economy’s long-term outlook and want an inflation hedge may want to give gold a closer look.
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