Should I buy gold for my ISA?

Edward Sheldon looks at the advantages and disadvantages of investing in gold.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The gold price has soared around 25% over the last year, meaning the yellow metal has outperformed equities by a wide margin. That kind of performance has got me questioning whether I should buy gold for my ISA. Here, I’ll weigh up some of the main advantages and disadvantages.

Advantages of gold

One of the main advantages is it can provide portfolio protection. Because it’s considered to be a ‘safe-haven’ asset, investors tend to gravitate towards the precious metal during periods of economic uncertainty, or heightened geopolitical risk, which can push its price up. For example, during the Global Financial Crisis in 2008/2009, the price of gold surged as global stock markets plummeted. Given the economic and political uncertainty the world faces right now as a result of Brexit and US/China trade wars, owning a little bit of gold as a form of portfolio insurance could be sensible, in my view.

Another major advantage is it can help improve portfolio diversification. Gold tends to have a low correlation to other major asset classes, such as equities and fixed income, meaning it can help improve the overall risk/return profile of a portfolio. Given that the bulk of my ISA portfolio is in equities (both UK and global stocks), gold could potentially lower my overall portfolio risk.

I’ll point out that gold is often seen as a ‘store of value’ as well. Bulls argue that it provides protection against currency devaluation. However, personally, I’m not so convinced it is a great store of value. I say this because the gold price can fall as well as rise. For example, if you had bought the metal in 2011 at a price of $1,800 or higher, you’d still be sitting on a substantial loss today. That’s not exactly a store of value, is it? 

Disadvantages of gold

On the downside, one of the main drawbacks that it doesn’t pay any interest or income. For me, this is a bit of a sticking point as I like my assets to generate an income stream. That way, I can reinvest my earnings and compound my wealth over time. As Warren Buffett says, it “doesn’t do anything but sit there and look at you.”

Gold is also hard to value. Because it doesn’t have any earnings or cash flows, we can’t use valuation models, such as discounted cash flow models, to work out its intrinsic value.

Should I buy?

All things considered, I can see the appeal of owning a little bit of gold in a portfolio as a hedge against economic uncertainty. I wouldn’t invest a large proportion of my portfolio in the precious metal, however. A small portfolio allocation of, say 5%, could be a sensible move as it could help improve my overall risk/return profile.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

This British wine-producing penny stock might just be vastly undervalued

This penny stock's certainly regained my interest. It's slumped and appears to be trading only at a modest premium to…

Read more »

Middle-aged black male working at home desk
Investing Articles

2 ways to target big riches with FTSE 250 stocks!

Searching for ways to boost your UK shares portfolio in 2025? Consider buying these FTSE 250 stocks and funds, suggests…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

How much would I need in an ISA to earn a £1,000 monthly second income?

Our writer looks at what it might take for an investor to earn a four-figure monthly second income from an…

Read more »

Investing Articles

Looking to get ‘ISA rich’? Here’s one top strategy to target huge wealth

Buying a blend of shares, trusts, and funds could be the best way to consider targeting long-term wealth with an…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

2 flying penny stocks to consider that could turbocharge an investor’s ISA!

These top penny stocks have lift-off at the start of 2025! Here's why Royston Wild believes they could continue to…

Read more »

Young Caucasian woman with pink her studying from her laptop screen
Investing Articles

Time to buy Nvidia shares before fresh all-time highs?

Nvidia shares began 2025 at an all-time high before a big drop in the last week or two. Our writer…

Read more »

Investing Articles

A top FTSE 100 share to consider for a Stocks and Shares ISA starter portfolio!

While not without risk, a lump sum in this FTSE 100 trust could prove a great way for Stocks and…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

I asked ChatGPT to name the best 5 UK shares to build wealth over 50 – and here they are!

Harvey Jones is looking to build a balanced portfolio of UK shares to fund his final years, and asked ChatGPT…

Read more »