Should you convert your cash savings to gold? (2024)

FAQs

Should you convert your cash savings to gold? ›

The bottom line

Today, owning gold can act as a hedge against inflation and deflation alike, as well as a good portfolio diversifier. As a global store of value, gold can also provide financial cover during geopolitical and macroeconomic uncertainty.

For short-term needs, cash is better due to its unmatched liquidity. For long-term buy-and-hold investments, gold is preferable to protect against inflation and provide portfolio diversification. The ideal solution is to hold both but allocate based on your specific needs and risk tolerance.

Saving may take the form of investing in gold, precious metals, and others. In fact, for the long term, saving in gold will be more profitable than saving in money because its value will not be eroded by inflation.

Experts typically recommend devoting between 5% to 10% of your portfolio to it. "This amount aims to balance the benefits of diversification with the unique risks and fluctuations of the gold market," says Nicholas Ganesh, manager at Endeavor Metals Group.

Gold is often considered a good investment for diversification, as it may be less correlated with other assets such as stocks or bonds.

Con: It doesn't give you passive income or steady returns

Unlike some investments that yield passive income (e.g., rental properties, some stocks and bonds), physical gold doesn't provide passive income, dividends or interest. You will only earn once you sell your gold.

The availability and value of gold fluctuates and does not provide the price stability necessary for a healthy economy. Under a gold standard the supply of money would be dependent on how much gold is produced.

If you want an investment that provides an income stream, stocks are likely the better choice. Note: You might be able to earn dividends from gold stocks or gold ETFs, but these are riskier than investing in physical gold like bars and coins.

The bottom line

Investing in 1-ounce gold bars can be a prudent move for those who are looking to diversify their portfolios and safeguard against economic uncertainties. However, it's crucial to approach this investment with a clear understanding of the market, associated costs and the long-term commitment required.

Which is better gold or bank deposit? ›

You can choose gold or Fixed Deposit after considering your expected return and risk appetite. A fixed deposit is a safe, highly liquid investment with a flexible term. Gold is a riskier investment, but it has offered higher returns than FDs in the past.

So you'll need to invest in the precious metal differently than you would with those assets. Most experts recommend limiting your gold investment to 10% or less of your overall portfolio. The range between 1% and 10%, however, will often vary based on your age and overall investor profile.

To protect themselves from inflation, central banks buy gold. The central bank demand for gold exploded in 2022, reaching its highest level in 55 years! Due to its scarcity, gold has intrinsic value. That means gold won't lose value over time, and maybe even appreciate, unlike money you keep in your savings account.

Traditional financial advice is that gold should comprise 5-10 percent of assets, or 10-20 percent if you're not including home equity.

Nothing beats a sense of financial security. That said, there are some good reasons not to keep too much money in cash: Inflation decreases the value of any money you hold in cash. Inflation, aka rising prices over time, reduces your purchasing power.

Because gold doesn't need the backing or guarantees of a bank, government, or anyone else, the metal is treated by investors as a 'safe haven' asset that can hold its value when other assets can't.

Conclusion on Fiat

Paper money has perceived monetary advantages over gold-backed assets. Specifically, as it gives good economic control to the government. It could help in taming inflation and provide enough supply of cash to the market.

As it is a physical asset, it requires storage and insurance costs. And, while gold is traditionally thought of as a safe asset, it can be highly volatile and drop in price.