The price of gold more than doubled between the start of 2024 and the end of 2025 — far outpacing the Nasdaq Composite‘s (NASDAQINDEX: ^IXIC) 57% total return.
But gold has been falling in recent months as the Nasdaq and S&P 500 (SNPINDEX: ^GSPC) notch fresh all-time highs. Investors heavily concentrated in stocks may be looking to other asset classes.
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Here’s how to integrate gold into a diversified portfolio and whether the sell-off is a buying opportunity.
Protecting against a weakening U.S. dollar
Investors with most or all of their assets tied to a fiat currency like the U.S. dollar — that is, currency backed by the government rather than a commodity — are vulnerable to swings in the dollar’s value relative to other currencies. Even when factoring in inflationary periods like the mid-1970s and early 1980s, the dollar has remained relatively stable since becoming the global economy’s primary reserve currency at the Bretton Woods Conference in 1944.
Given the dollar’s global influence, companies or households whose local currency is unstable may convert their currency into dollars for a more secure store of value. But some investors may be concerned that the dollar will continue to weaken as the national debt climbs, other economic powerhouses pressure the dollar, or if long-term interest rates fall to help alleviate consumer debt (which would weaken the dollar). An alternative to the dollar could be another fiat currency, such as the euro, pound, yen, or yuan. But gold has historically been an excellent hedge against inflation because of its universally recognized value independent of any single economy. So, if you’re a U.S. investor, the simplest reason to allocate a portion of your portfolio to gold is to give you a store of value that isn’t denominated in dollars.
The key driver of gold’s surging price in recent years is that central banks, institutional, and retail investors have been buying it to hedge against inflation, as an economic reserve, and to offset fiat currency instability. Gold isn’t alone, as other precious metals like silver and platinum have also seen massive run-ups.
Including gold in a diversified portfolio
Instead of trying to time the market by buying stocks or gold, a far simpler approach that should help you rest easy at night is to determine your desired asset allocation. For some investors, that may mean allocating something like 5% to 10% of their financial portfolio to gold. Whereas others may avoid gold entirely because it doesn’t offer partial ownership in a business (like stocks) or a yield like dividend stocks, bonds, or Treasury Bills. The decision comes down to your risk tolerance and how concerned you are about currency and economic risks.
To make the puzzle even more complex, there are plenty of different ways to invest in gold. Getting direct exposure by buying the yellow stuff through bullion, coins, or jewelry is a strategy that goes back thousands of years. But some investors may want to hold gold through a brokerage account, which can be particularly effective if you’re looking to buy gold in a retirement account. In that case, two of the best exchange-traded funds (ETFs) are SPDR Gold Shares (NYSEMKT: GLD) and the iShares Gold Trust (NYSEMKT: IAU).
Both gold ETFs partner with institutions that hold physical gold on their behalf for risk protection. These ETFs are highly liquid and have more straightforward accounting than buying and selling physical gold. These advantages, paired with their security, make the 0.4% expense ratio of the SPDR Gold Shares and the 0.25% expense ratio of the iShares Gold Trust well worth the price.
Another way to invest in gold is through gold mining stocks and ETFs. Like oil and gas companies, gold miners are heavily affected by gold prices and tend to rise when gold prices go up. Sometimes mining stocks can rise or fall faster than the price of the underlying commodity, making them effectively leveraged bets. However, if your primary objective is to protect against inflation, geopolitical risks, and dollar volatility, then it’s probably best to keep it simple and invest in gold through an ETF or in physical gold rather than mining stocks.
The benefits of dollar-cost averaging into gold
Investors shouldn’t sell stocks just because they are high, or buy gold just because it is falling. But if elevated volatility is weakening the investment thesis of certain stocks in your portfolio, now could be a good opportunity to bridge the gap between your actual and desired gold allocation.
Investors who are still adding new savings to their portfolios could also consider dollar-cost averaging into gold by buying gold in regular intervals based on contributions, regardless of its price.
For example, instead of selling a stock to buy gold, you could first determine your desired gold allocation, say 5%, and then continue allocating 15% of your new savings to gold until it reaches 5% of your portfolio. At that point, you could adjust new contributions down to 5% gold to maintain a balanced allocation. That way, you can focus more on the long-term benefits of buying and holding gold rather than trying to time the market.
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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Should You Buy the Dip on Gold as the S&P 500 and Nasdaq Hit All-Time Highs? was originally published by The Motley Fool