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The gold price looks set to return to $1,800. Is it the key to retirement riches?

The gold price has been on a tear this year. It entered 2019 at around $1,250, but has since surged in value and is currently dealing for around $1,530, a gain of 22.4%. 

In sterling terms, the value of the yellow metal is up around 25% year-to-date.

After this rally, it’s no surprise that many investors are asking if now is the time to buy gold, and I’m going to try to answer this question today. 

A long time coming

I think it is important to try to put the current gold price rally in context. While a 22% gain since the beginning of the year might look impressive, the price of gold has only just returned to where it was in mid-2011.

After hitting an all-time high towards the end of 2011, the gold price immediately started falling and didn’t stop until the end of 2015. It lost more than 40% of its value between mid-2011 and the end of 2015. 

Still, over the past 10 years, investors have seen a return of 63%. Over the past 20 years, the gold price has risen a total of 500% or 9.5% per annum, virtually matching the return of equities over the same timeframe.

Lucrative returns

Looking at these returns, it is pretty easy to conclude that gold could help you retire in comfort, but putting all of your assets in this one basket would be a mistake in my opinion.

Gold might have matched the performance of stocks over the past two decades, but over the longer term, it has struggled to keep up. 

If we go back 30 years, gold has severely lagged stocks. For example, £1,000 invested in an index of the world’s largest companies would be worth £7,400 today compared to just £3,000 for gold. 

There are other factors to consider, as well. Gold is mainly traded in dollars, so UK investors will be exposed to currency movements. Then there’s the problem of buying gold. Physical gold can be costly to store while buying exposure to the commodity with funds can also incur extra costs. 

Part of a strategy

Considering all of the above, I think it would be better to own gold as part of a portfolio, rather than on its own. Mixing the defensive qualities of gold with equities, such as a FTSE 100 tracker fund will give you the benefits of the higher returns from stocks, as well as low volatility.

Higher returns might also be possible with small-cap stocks. Some small-cap funds have clocked up annual returns of 10% or more per annum, far above the returns offered by gold. The one downside of this strategy is that small-caps tend to be more volatile in the short term. 

You could also add in some single stocks, dividend champions such as Legal & General, which will provide a steady income when the going gets tough. Dividend funds or investment trusts could be other alternatives. 

Here at the Motley Fool, we’re all about long-term investing, and a crucial part of that is making sure your portfolio can survive all environments. Owning gold will help you do just that, but it’s not a one-stop solution. 

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.