As you can see from the responses so far, there is a range of opinions on whether gold and other commodities should even be included in a diversified investment portfolio. Historically, gold behaves more like a currency than a commodity because it is traded by speculators and investors much more than it is used in industrial processes. Viewed in this context, one could make a case for gold as an inflation hedge or as a short-term hedge against declining currency values, but as a long term investment I believe that there are superior assets that achieve the same objective. I agree with the admonitions about media hype; one reason that you hear so many radio and TV advertisements promoting gold is because the price has gone up in the past few years, while other asset classes (except Treasuries) have languished. Because gold is not a security it is not subject to the same advertising restrictions that require a fair and equitable presentation of opportunity and risks. Imagine if an investment advisor cherry picked the best performing stocks or funds and promoted them as "the next big investment" based on past performance. They would be quickly reprimanded by the regulators and justly so. Yet this is exactly what gold bugs do with their shameless self-promotion and exaggerated claims. If you ultimately decide that you do wish to hold some physical gold in your portfolio, consider working with a qualified, fee-only advisor to obtain the best terms and minimize your transactions costs. Good luck!
Allow me to disagree wholeheartedly with Evan, and to some extent, the other reasoned answers. I believe strongly that investors should maintain an allocation to gold. It is absolutely a valid asset class to invest in; it isn't simply a speculation. The price of gold has risen for eleven straight years. Can you think of any asset that has had the same price gains? As nations around the world do everything in their power to debase their currencies, gold will likely continue to increase in value relative to those currencies. There are many ways to own gold, either through direct purchases of coins, mutual funds, ETFs or individual stocks. You should speak with an advisor as to which may be the best for you depending on your unique circumstances. But don't let the naysayers scare you away from investing in gold.
One important factor to keep in mind when considering a direct investment in gold is that gold does not pay dividends or interest. As a result, if gold prices happen to stay fixed for a period of time, the value of your portfolio would remain essentially unchanged. On the other hand, a diversified portfolio consisting of stocks and bonds can provide income which could potentially increase your returns and/or offset losses resulting from declines in the market values of securities. This would provide you with some protection against inflation and help to reduce the downside exposure within your portfolio. Accordingly, the decision to invest in gold should be made only after consideration of the potential upsides and downsides. This will help you to position the investment as a single part of a well-diversified and balanced portfolio.
I can understand gold's use as an alternative to the fiat currencies of the world but, personally, I can't find any investment merits in the metal at all. I just don't know how to value it and I readily admit that may be a shortcoming of mine.
Ultimately, I think Warren Buffett does the best job of quantifying the argument: "You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"
This is not to say gold is not a good vehicle for speculative activities. It just doesn't make any sense as an investment, a distinction that is imperative to acknowledge.
You should always START your decision making tree at the end and work backwards. Therefore, your first question should be "what am I trying to accomplish?" and clearly define your needs, expectations and timeline.
GOLD like everything that you can spend money is great and terrible depending on what you are trying to do in the same way that a screwdriver is a great tool unless you need to drive a nail or cut a board. You could have just as easily asked "Is penicillin a good drug?". If you have an infection: YES. If you are allergic: NO. If you have a broken arm: NOT WHAT YOU NEED, BUT NEITHER GOOD NOR BAD. All of the answers given have merit, but you will always be more successful if you clearly define what "success" means to you. That is hard for investors sometimes because they do not know where to start. Start at the end.
You can't invest in gold because gold is not an investment, its speculation.
One would respectfully suggest that Gold should definitely be part of a diversified portfolio consisting of stocks, bonds, real assets and cash. You could consider gold as either a real asset or as a type of currency (non-US cash), but I believe Gold should be part of the mix. Other real assets could include real estate, oil, raw materials and commodities. There are low-cost index Exchange Traded Funds (ETF's) that provide exposure to all of these asset classes. Currently, my 12 ETF Balanced Model Portfolio contains 27% Stocks, 26% Real Assets, 47% Bonds, and no cash, including a 6.67% position in GLD (Gold ETF).
The difference between gold and every other asset class used as an investment is that Gold produces no income of any kind. Real estate investments earn rent. This is the basis for their value. Companies generate earnings, which are the basis for the value of their shares. Bonds produce interest income, this cash flow dictates the value of the bond. Gold has value only so long as people believe it has value. Ironically, the gold bugs use this same argument for arguing that currencies should be tied to gold. They point out that the dollar only has purchasing power because people believe it has purchasing power. And that is true, but it is also true of gold.
It seems to me that gold has become much more volatile now with the advent of Exchange Traded Funds that allow investors to trade in and out of the metal at will. While gold may have always been speculative, this was a real game changer. With no firm basis (such as income) for its daily value, the price of gold is likely to gyrate wildly based on the whims of fickle investors.
I will grant that theoretically gold may represent a "store of value" or an "inflation hedge" - but there is no way anyone can tell you what the price of gold should be today. Was the price several months ago fair, when gold was at $1800/ounce? Or is the price today fair at $1200/ounce? Or is the "right" price $800 or $400 or $2500 an ounce? The only way to form an opinion is to speculate on what will happen in the future - will central banks be net buyers or sellers? Will the big hedge funds buy gold or sell gold? Will jewelry buyers buy enough gold to support the price if these large institutions start to sell? There is no way to answer these questions, therefore any investment in gold involves speculation.
Many gold bugs echo the sentiments of Chicken Little; constantly proclaiming that the sky is falling. If you are purchasing gold in preparation for an economic doomsday scenario, be sure to buy physical gold. GLD and other ETFs will ultimately be worthless if such a scenario were to materialize. Having a small allocation to gold may make sense in the context of a broad portfolio, but I believe their are better ways to hedge out inflation or a market meltdown.
We always consider gold as an "alternative investment", when doing our asset allocations. Fortunately, we sold out of gold early in the year.
Whether now is the time to get back in is something you'll need to decide for yourself.
Educate yourself, look at historical prices, and understand the reasons it has gone up and down during different economic cycles.
I know a few "preppers" that believe the world as we know it is coming to a close soon, and think that gold will be the only tradable currency into the future. Others think it will be food.
Again, do your research, but don't put all your eggs into one basket.