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Is now a good time to invest in a gold ETF?

Now might be a good time to put some of your money in a gold ETF. Getty Images

Buying gold is one of the oldest investments in the world. For as long as human beings have known about the precious metal, they've been holding it as a sign of wealth. And, while there's one commonly known way to invest in gold – holding gold bars, coins and jewelry – there are lots of other ways to tie your fortune to the world of gold. 

One way to put your money in gold is to use a gold exchange-traded fund (ETF). These let you invest in the gold market without having to buy physical gold. While it may not make sense to put all of your money into a gold ETF, this could be a good time to move some of your funds into one.

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Is now a good time to invest in a gold ETF?

While every person's financial situation is different, this could be a good time to move some of your money into a gold ETF. Here are a few reasons why this investment might make sense for you.

There are different options to choose from

Generally speaking, there are two types of gold ETFs you'll have to choose from: ones that invest in physical gold and ones that invest in the companies that mine gold.

Using an ETF that invests in physical gold lets you own the asset while not having to deal with the hurdles that come with owning gold bullion. While owning physical gold can be a good investment, it does require some work. Not only do you have to buy the gold from a reputable gold dealer, but you also have to find (and pay for) a safe way to store your gold. You'll also need to insure it.

If you don't want to own physical gold but still want to be involved in the market, a mining-focused gold ETF could be a good choice. These companies' stock prices often rise and fall along with the price of gold, so they are still a conduit into the gold market. Many of them also pay dividends, so you could get some income out of your investment as well. 

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Your investment can hedge against inflation

Inflation has been a major issue in the United States for the past 18 months. While actions by the Federal Reserve have brought the inflation rate down, it's still above the goal of 2.0% year-over-year. For this reason, it might make sense to keep investing in gold via a gold ETF – because gold is considered to be an effective hedge against inflation.

It might sound complicated, but it's fairly simple. When the rate of inflation is high, your money loses purchasing power, as each dollar is worth less on the market. Other investment choices could end up losing your value even if they do make gains if the gains are slower than the rate of inflation. Gold tends to move alongside the inflation rate, so your money will keep its value. 

The initial investment amount can be minimal

One reason some people may be scared off from investing in gold is that it is fairly expensive — as of December 27, 2023, the spot price of one ounce of gold was $2,067.65. When you invest in gold ETFs, though, the initial investment amount can be much lower. You just need to be able to buy one share of the fund. 

]While these shares have prices that fluctuate like any other ETF or stock, many high-quality gold ETFs currently trade for less than $100 per share. So, if you want to get involved in the gold market but don't have enough for a hefty investment, buying a few shares of a gold ETF may be the right entry point for you.

The bottom line

While investing all of your money in gold typically doesn't make sense, having some money in a gold ETF could make sense for you. You can choose between an ETF that buys physical gold and one that invests in the companies involved in gold mining. Either way, you'll get a hedge against inflation and some protection if the economy enters a recession. 

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