Gold on the Rise: Does the Precious Metal’s Shine Hide Investor Risks?

Photo Disclosure Internet

Gold has long been considered a safe haven in times of economic uncertainty, and in 2025, its appeal has surged to new heights. Prices have soared over 20% since the election of Donald Trump, with central banks doubling their gold purchases since Russia's 2022 invasion of Ukraine. In the first quarter of 2025 alone, gold-backed ETFs saw $21 billion in inflows, and retailers like Costco have profited heavily from selling gold bars.

However, as gold prices hit record highs, investors must ask: is gold still a safe bet, or are there risks lurking beneath the surface?

The Allure of Gold

Gold's rise is driven by several factors:

• Geopolitical Tensions: Ongoing conflicts, such as the Russia-Ukraine war, and tensions in the Middle East, have increased demand for gold as a safe haven.

• urchases: Central banks have doubled their gold purchases since 2022, reaching 1,000 tons annually.

• Retail Investment: Individual investors are shifting from gold jewelry to bullion and coins, seeking tangible assets amid economic uncertainty.

Experts forecast that gold prices could rise to $3,700–$5,000 per ounce by 2028, driven by continued demand and economic instability.

The Risks Involved

Despite its appeal, investing in gold carries several risks:

• Price Volatility: Gold prices can fluctuate significantly. For example, in April 2025, gold prices fell over 3% following improved U.S.-China trade relations.

• Interest Rates: Higher interest rates can reduce gold's appeal, as investors seek better returns from fixed income assets.

• Currency Strength: A stronger U.S. dollar can dampen gold's performance for international investors.

• Lack of Income: Unlike stocks or bonds, gold does not generate income, relying solely on price appreciation for returns.

• Storage and Security Costs: Physical gold requires secure storage, often through vaults or safety deposit boxes, which come at a price.

  
  

Should You Invest?

Gold can be a valuable component of a diversified investment portfolio, especially during periods of economic uncertainty. However, it's essential to consider the associated risks and ensure that gold investments align with your financial goals and risk tolerance. Financial advisors often recommend allocating no more than 10–15% of an investment portfolio to gold.

As with any investment, conducting thorough research and consulting with a financial advisor is crucial before making decisions.