Investing in gold

Imagine kneeling by a creek during the 1850s gold rush, swirling sediment in a pan and hoping for a flash of yellow. Australia has moved well beyond those early days, yet gold remains one of the most closely watched and debated assets in global markets.

In recent years gold has hit record levels, trading above US$5,000 per ounce before pulling back from an all-time high near US$5,608. This shift reflects a mix of inflationary pressures, shifting interest rate expectations, geopolitical uncertainty, and speculative flows. 

Silver's industrial demand and recent volatility have led some investors to favour it over gold in early 2026, but gold's relative stability and long-standing role as a store of value keep it central to many portfolios.

Gold does not produce income like shares or property. Its value comes from scarcity, its role as a store of wealth, and its reputation in unsettled markets. This guide explains why gold holds value, what moves its price, the key ways Australians can invest, and the risks and potential rewards of each approach.

Why is gold valuable?

In ancient times, gold's malleability and lustre led to its use in jewellery and early coins. It was also hard to dig gold out of the ground. The more difficult something is to obtain, the higher it is valued. 

Over time, humans began using the precious metal to facilitate trade and accumulate and store wealth. Early paper currencies were generally backed by gold, with every printed note corresponding to an amount of gold held in a vault where it could technically be exchanged (this rarely happened). 

This approach to paper money lasted well into the 20th century. Today, modern currencies are largely fiat currencies, so the link between gold and paper money has long been broken. However, people still love the yellow metal.

Benefits of investing in gold

Gold continues to play a strategic role in many Australian portfolios as a defensive, long-term asset. Because it is not linked to the profitability of any one company or economy, gold tends to behave differently to shares, particularly during periods of stress in financial markets. Below are the main advantages in more detail:

• Portfolio diversification: Gold has a low historical correlation with the ASX share market. This makes it a useful addition for smoothing returns and reducing overall volatility during periods when equity markets are falling.
  
• Inflation hedge: When the cost of goods and services rises (as measured by CPI in Australia), the purchasing power of cash can erode. Gold prices often rise in inflationary environments, helping preserve real value over time.
  
• Crisis protection: During recessions, geopolitical shocks or sharp market sell-offs, investors typically flock to gold as a "safe-haven" asset. This surge in demand can lead to price appreciation right when other assets are declining.
  

Tangible store of value: Unlike fiat currencies, which can be printed in unlimited quantities, gold is a finite natural resource. Whether held as physical bullion, coins, or indirectly via gold-backed ETFs, it provides Australians access to a globally recognised and liquid form of wealth.

Where does demand for the yellow metal come from?

The largest demand industry, by far, is jewellery, which accounts for about 50% of gold demand. Another 40% comes from direct physical investment in gold, including that used to create coins, bullion, medals, and gold bars. (Bullion is a gold bar or coin stamped with the amount of gold it contains and the gold's purity. It is different from numismatic coins, which are collectibles that trade based on demand for the specific type of coin rather than the coin's gold content.) 

Investors in physical gold include individuals, central banks and, more recently, exchange-traded funds (ETFs) that purchase gold on behalf of others.

Gold is often viewed as a safe-haven investment. If paper money suddenly became worthless, the world would have to fall back on something of value to facilitate trade. This is one of the reasons investors tend to push up the price of gold when financial markets are volatile.

Since gold is a good conductor of electricity, the remaining 10% of the demand for gold comes from industry for uses, including dentistry, heat shields, and tech gadgets. 

How is the gold price determined?

Gold is a commodity that trades based on supply and demand. The interplay between supply and demand ultimately determines the spot price of gold at any given time.

Demand for jewellery is relatively constant, though economic downturns can temporarily reduce it. However, demand from investors, including central banks, tends to track the economy and investor sentiment inversely. 

When investors are worried about the economy, they often buy gold and, based on the increase in demand, push its price higher. You can keep track of gold's spot price ups and downs at the website of the World Gold Council, an industry trade group backed by some of the largest gold miners in the world.¹ 

How much of this commodity is out there?

Gold is quite plentiful, but it is difficult to extract. For example, seawater contains gold, but in such small quantities, it would cost more to extract than the gold would be worth. So, there is a big difference between the availability of gold and how much exists.

In early 2021, the World Gold Council estimated about 197,576 metric tonnes of gold above ground are being used today. And roughly 54,000 metric tonnes of gold could be economically extracted from the earth using current technology. 

Advances in extraction methods or a materially higher gold price could shift that number. Gold has been discovered near undersea thermal vents in quantities that suggest it might be worth extracting if prices rose high enough. 

How do we obtain gold?

Although panning for gold was a common practice during the Australian gold rush, nowadays, it is mined from the ground. While gold can be discovered by itself, it's more commonly found along with other metals, including silver and copper. Thus, a miner may produce gold as a by-product of its other mining efforts.

Miners begin by finding a place where they believe there is gold in large enough quantities to be economically obtained. Then, local governments and agencies must grant the company permission to build and operate a mine.

Developing a mine is a dangerous, expensive, and time-consuming process. There is little to no economic return until the mine is finally operational, which often takes a decade or more. 

How gold reacts to stock market trends

Gold typically has a low or negative correlation with stock markets like the ASX. This means when share prices are falling, gold often holds its value or even rises, making it a popular downside hedge.

Why this happens:

• Investor sentiment shift: During equity sell-offs or crashes, investors tend to move capital out of "risk assets" like shares and into "safe-haven" assets such as gold. This rotation of capital can push gold prices higher at the same time stock indices fall.
  
• Liquidity and defensive demand: Gold is one of the most liquid alternative assets globally. When market conditions deteriorate, institutional and retail investors buy gold (directly or via ETFs) to preserve capital, adding upward pressure on the gold price.
  
• Inverse relationship with risk appetite: In bull markets when investor confidence is high, money flows into growth assets like equities and away from gold, which can cause gold prices to stagnate. Conversely, during bear markets or periods of volatility, gold tends to outperform as fear increases.
  
• Monetary policy reaction: Sharp falls in stock markets often coincide with central bank rate cuts or quantitative easing. These policies weaken fiat currencies and lower real returns on cash — conditions in which gold historically performs well and becomes more attractive to hold.

As a result, even a small allocation of gold in an Australian equity-heavy portfolio can help offset losses during major downturns and smooth long-term returns.

How well does it hold value in a downturn?

The answer depends partly on how you invest in gold, but a quick look at the gold price relative to share prices during the bear market of the 2007-2009 recession provides a telling example.

Between 30 November 2007 and 1 June 2009, the S&P/ASX 200 Index (ASX: XJO) fell almost 50%. The price of gold, on the other hand, rose 25%. This is a recent example of a material and prolonged share market downturn. It's also a particularly dramatic one because, at the time, there were very rea­l concerns about the viability of the global financial system.

More recently, the inflation surge and rapid rate hikes in 2022 to 2023 created a different backdrop. Rising real interest rates pressured gold at times, yet it remained relatively resilient and has since climbed to fresh record levels amid ongoing geopolitical tensions and strong central bank demand.

When capital markets are in turmoil, gold shares often perform relatively well as investors seek out safe-haven investments.

Ways to invest in gold

Here are all the ways you can invest in gold, from owning the actual metal to investing in companies that finance gold miners.

Jewellery

The mark-ups in the jewellery industry make this a bad option for investing in gold. Once you've bought it, its resale value will likely fall materially. This also assumes you're talking about gold jewellery of at least 10 karats (pure gold is 24 karats.) Costly jewellery may hold its value, but more so because it becomes a collector's item than because of its gold content.

Bullion, bars, and coins

These are the best options for owning physical gold. However, there are mark-ups to consider. The money it takes to turn raw gold into a coin is often passed on to the end customer. Also, most coin dealers will add a mark-up to their prices to compensate them for acting as middlemen.

Perhaps the best option for most investors looking to own physical gold is to buy gold bullion directly from the Royal Australian Mint, so you know you are purchasing from a reputable dealer.

Then you have to store the gold you've purchased. That could mean renting a safe deposit box from the local bank, where you could pay an ongoing storage cost. Meanwhile, selling can be difficult since you have to bring your gold to a dealer, who may offer you a price below the current spot price.

Gold certificates

Another way to get direct exposure to gold without physically owning it, gold certificates are notes issued by a company that owns gold. These notes are usually for unallocated gold, meaning there's no specific gold associated with the certificate, but the company says it has enough to back all outstanding certificates. You can buy allocated gold certificates, but the costs are higher. 

The big problem here is that the certificates are only as good as the company backing them, like banks before the Federal Government's Financial Claims Scheme was created. 

This is why one of the most desirable options for gold certificates is the Perth Mint, which the government of Western Australia backs. That said, if you buy a paper representation of gold, you might want to consider ETFs instead. 

ETFs

If you don't particularly care about holding the gold you own but want direct exposure to the metal, then a gold ETF like ETFs Metal Securities Australia Ltd is probably the way to go. This fund directly purchases gold on behalf of its shareholders. You'll likely have to pay a commission to trade the ETF, and there will be a management fee, but you'll benefit from a liquid asset that invests directly in gold coins, bullion, and bars.

Futures contracts

Another way to own gold indirectly, futures contracts are a highly leveraged and risky choice that is inappropriate for beginners. Even experienced investors should think twice here. Essentially, a futures contract is an agreement between a buyer and a seller to exchange a specified amount of gold at a specified future date and price. 

As the gold price moves up and down, the value of the contract fluctuates, with the accounts of the seller and buyer adjusted accordingly. Futures contracts are generally traded on exchanges like the ASX, so you'd need to talk to your broker to see if it supports them. 

The biggest problem: Usually, futures contracts are bought with only a small fraction of the total contract cost. For example, an investor might only have to put down 20% of the full cost of the gold controlled by the contract. This creates leverage, which increases an investor's potential gains — and losses. And since contracts have specific end dates, you can't simply hold on to a losing position and hope it rebounds. 

Futures contracts are a complex and time-consuming investment that can materially amplify gains and losses. Although they are an option, they are high-risk and not recommended for beginners.

Gold mining shares

One major issue with direct investment in gold is that there's no growth potential. An ounce of gold today will be the same ounce of gold 100 years from now. That's one of the key reasons famed investor Warren Buffett doesn't like gold — it is, essentially, an unproductive asset.

This is why some investors turn to gold mining shares. The share prices of gold mining companies tend to follow the gold commodity price. However, miners also run businesses that can expand over time so that investors can benefit from their increased production. This can provide the upside that owning physical gold never will.

However, running a business comes with accompanying risks. Mines don't always produce as much gold as expected, workers sometimes go on strike, and disasters like a mine collapse or deadly gas leak can halt production and even cost lives. All in all, gold miners can perform better or worse than the gold price, depending on what's going on with the miner.

In addition, most gold miners produce more than just gold. That's a function of the way gold is found and diversification decisions made by the mining company's management. 

If you're looking for a diversified investment in precious and semi-precious metals, then a miner that produces more than just gold could be a net positive. However, if you want pure gold exposure, every ounce of a different metal that a miner pulls from the ground simply dilutes your gold exposure.

Potential investors should pay close attention to a company's mining costs, existing mine portfolio, and expansion opportunities at both existing and new mines when deciding which gold mining shares to buy.

Mining-focused ETFs

If you want a single investment that provides diversified exposure to gold miners, low-cost index-based ETFs such as VanEck Gold Miners ETF AUD or the BetaShares Global Gold Miners ETF — Currency Hedged are good options. Their expense ratios are 0.53% and 0.57%, respectively.

As you research gold ETFs, look closely at the index being tracked. Pay particular attention to how it is constructed, the weighting approach, and when and how it gets rebalanced. These are important pieces of information that are easy to overlook when you assume a simple ETF name will translate into a simple investment approach.

There's no perfect way to own gold because each option comes with trade-offs. However, what to invest in is just one piece of the puzzle. There are other factors that you need to consider.

How much should you invest in gold?

The price can be volatile, so you shouldn't invest large amounts of money into gold. We think keeping it to less than 10% of your overall share portfolio is best. 

The real benefit for new and experienced investors comes from the diversification that gold can offer. Once you've built your gold position, make sure to periodically balance your portfolio so that your relative exposure to it remains the same.

When should you buy?

It's best to buy small amounts over time. When the gold price is high, the prices of gold-related shares also rise. That can mean lacklustre returns in the near term, but it doesn't diminish the long-term benefit of holding gold to diversify your portfolio. You can dollar-cost average into the position by purchasing a little at a time.

As with any investment, there's no one-size-fits-all answer for how you should invest in gold. But armed with the knowledge of how the gold industry works, what each type of investment entails, and what to consider when weighing your options, you can make the decision that's right for you.

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FAQs

What is the return of gold in the past 20 years?

In Australian dollar terms, gold has risen from around ~$560 per ounce in 2004 to over ~$3,500 per ounce in 2024 — a gain of more than 500%. That equates to an average return of roughly 8–10% per year, though performance has been uneven across market cycles.

Is gold a good investment to buy?

Gold can be a smart addition to a diversified portfolio thanks to its defensive qualities and historical ability to hold value during market stress. However, it doesn't generate income like dividends, so many investors use it as a hedge rather than a primary growth asset.

Which is better: gold or stocks?

Over the long run, Australian shares have generally delivered higher total returns than gold due to dividend income and company growth. That said, gold tends to outperform during market downturns and inflationary periods, making it a useful complement to, rather than a replacement for, stocks.