The price of gold has been climbing steadily since 2022 and recent political tension in the U.S. – namely the current government shutdown – has fuelled this upward trend further.
While budget deadlocks have led to shutdowns before, the real issue is the growing political impasse between Democrats and Republicans. It raises concerns about the U.S. government’s ability to manage its rising debt in the long run.
Budget deficits abound
This isn’t only an American issue. France is also facing difficulties controlling its budget deficit due to a lack of political unity. Technically these wealthy nations can handle their debt, but what’s missing is the political cooperation to make that happen. Markets are beginning to take notice.
This is another factor behind the rising gold price
U.S. Treasury bonds, once considered the safest investment in the world, no longer have that unassailable status. When the U.S. lost its AAA credit rating and froze Russia’s central bank reserves in 2022, countries began questioning whether U.S. bonds are truly neutral. Central banks and sovereign funds began retreating from U.S. dollar-backed assets.
With few top-rated alternatives and limited liquidity in other markets, many investors are turning to gold. Central banks’ demand for gold has doubled, pushing prices higher because gold lacks the scale and liquidity of the bond market.
So, is buying gold a no-brainer?
Even in these market conditions, deciding whether this is the time to invest in gold isn’t a simple “Yes” or “No” answer. Like every significant investment decision, it depends on your financial goals, your risk profile, and your overall portfolio strategy.
Factors in gold’s favour
It’s a hedge against inflation and currency weakness
Historically, gold has served as a store of value when fiat currencies lose purchasing power and inflation remains elevated. Inflationary pressures in many regions and concerns over currency stability have helped boost gold’s appeal recently.
It offers “safe haven” appeal
In times of ongoing economic uncertainty, weaker growth prospects, and geopolitical drama (think: trade tensions and global conflicts), gold often attracts investors seeking protection. Moreover, institutional demand from central banks appears to be increasing, adding a structural demand tailwind.
There are diversification benefits
Gold tends to have a low or negative correlation with equities and bonds, meaning that adding some gold to a multi-asset portfolio can reduce overall investment risk. A South African multi-asset study found that a 5-10% gold allocation improved portfolio performance over rolling 36-month periods.
Why caution against gold could be warranted
No yield/income generation
Gold is a speculative investment. You only profit if the price goes up (and then you sell to lock the profit in). If you require ongoing cash flows from your portfolio, you need to own dividend-paying shares or interest-bearing bonds.
High entry level prices mean potential upside is already limited
Given gold has already risen significantly in 2025, the potential for further upside may be limited. Some analysts warn that expecting the same large gains seen in the recent rally might be unrealistic.
Storage, insurance, and transaction costs
If you buy physical gold (bars or coins), you face storage and security costs, plus potentially higher markups and/or fees.
Dependence on macro factors
Gold’s performance is heavily driven by macro factors such as real interest rates, the strength of the U.S. dollar, inflation, and central bank behaviour. Gold could underperform if inflation falls, interest rates rise, or the U.S. dollar strengthens.
Summing up: points to consider before buying gold
- Be clear: gold is a defensive asset in your portfolio, not the growth engine.
- A widely-used rule of thumb: allocate 5-10 % of your portfolio to gold. This gives you the diversification benefit without overexposing you.
- If you are looking for wealth preservation, to hedge against inflation, or to reduce overall portfolio risk, then a modest allocation to gold makes sense. (If you expect gold to deliver similar returns from here, the easy gains may have already been made).
- If you are investing for the long term and gold is part of a diversified portfolio, it may be appropriate. (If your horizon is short term, or you are chasing speculative gains, gold is riskier).
- Consider rand cost averaging rather than a lump-sum investment – this smooths your entry-timing risk.
- Use vehicles that are appropriate for you: physical gold (bars or coins), gold ETFs/funds, or gold-linked securities. Each has its own pros and cons (liquidity, costs, storage, etc.).
- Revisit your investment portfolio allocation annually – if gold’s share of your total portfolio rises due to price increases, you may need to rebalance.
As always, your ultimate financial wellbeing is of the utmost importance to us at Netto Invest. If you want to explore the pros and cons of adding gold to your investment portfolio, reach out to your CERTIFIED FINANCIAL PLANNING® Professional and talk about it.
Morné Bezuidenhout, CFP®
B.Com LLB
Director, Wealth Manager
