Evaluating the Risks of Investing in Gold: A Complete Guide

Your money and assets make up your wealth. As you build your portfolio, you want to make investments that serve you and your financial goals. Gold is a fantastic investment that can diversify and insulate your investment strategy from various factors that make traditional investments volatile.

Over the years at Oxford Gold Group, we’ve addressed many investors’ questions and concerns about the risks of investing in gold. Here are answers to some of the most common questions and a breakdown of the basic types of gold investment strategies.

Can Investing in Gold Be a Risky Investment Strategy?

All investment options can be risky. The way you invest in gold and other precious metals dictates the level of risk you take on. By and large, gold does not gain value.

The S&P 500 has wildly outperformed gold in appreciation over the last decade. If your greatest concern is short-term growth, traditional investment strategies may be a safer option for you.

Gold does, however, hold value over the long term. Because of this, investing in gold can actually reduce the overall risk you carry in your portfolio. Today, many investors use gold as a hedge against inflation and global market volatility for their portfolios.

What Are the Risks Associated with Investing in Gold?

man pointing red wooden blocks

A few risks apply to all forms of gold investment. Here are some of the biggest factors to consider when evaluating the risk of investing in gold.


Gold is highly liquid. While this is an advantage in many cases, the inherent risks of this liquidity are important to understand.

High liquidity introduces volatility. Like with cash, there are fewer regulations regarding how you use gold. This creates a low bar of entry for investors to enter the gold market.

While this is good for upstanding investors, scammers who take advantage of gold’s liquidity abound. When trading gold between individuals or on unverified forums, you assume the risk of unscrupulous sellers taking advantage of you, and you are solely responsible for protecting your assets.


Short-term gold prices can be volatile. Over the long term, gold holds its value extremely well, but gold prices fluctuate quickly in the short term for a multitude of reasons.

The main source of volatility in the gold market is its daily price, also known as the spot price. This price fluctuates quickly in response to ebbs and flows in demand for gold. This can make gold risky for investors who are interested in frequent trading or are not interested in holding gold long-term.

Political Risk

Political risk is the risk associated with world events: wars, trade wars, tumultuous elections, or changes in national policy, such as increases or decreases in the tax rate on gold. When these events take place, the price of gold can rise or fall quickly. This is something to take into account as you consider whether gold is the right choice for your portfolio.

Inflation Risk

One of the most consistent and valuable benefits gold offers is its long-term stability versus inflation. Gold is historically inflation resistant, but there are no guarantees for that to be the case forever.

While this is a low-level risk, it is a stubborn one baked into the very nature of the gold market. Technically, it is possible for gold to fall behind the inflation curve.

How Does Storage Risk Affect Gold Investments?

safety deposit box at home

Another risk you assume when investing in physical gold is its storage. Once you buy gold bars or bullion, it is yours to protect and store.

Storage can be expensive, especially if you plan to hold gold for a long time. Some common ways gold investors store their gold bars and bullion are by using safety deposit boxes at their banks, safes in their homes, and precious metal storage services. When deciding whether holding physical gold is right for you, consider how much you will need to spend to safely store your gold for the duration of your hold.

If you invest in your gold via a gold IRA, you can hold your gold for a long time, but you do need to work with a reputable, IRS-approved custodian company.

Risk of Investing in Physical Gold

Storage concerns are not the only risk of investing in physical gold. Gold purity is another risk factor to consider. If you are not buying physical gold from a third-party-verified, reputable dealer, you incur the risk of buying substandard gold at pure gold (24K gold) prices.

Another risk to consider is that physical gold generates no passive income. It can only appreciate or depreciate, making its spot price value a toss-up in the short term.

Theft is also always a risk. You can mitigate this with proper storage and security, but both are expensive to hold for the life of your investment, and neither can guarantee a 100% risk-free hold.

Are There Any Risks with Investing in Gold ETFs and Other Non-Physical Gold Investments?

Investors who do not want to incur the risks of holding physical gold can still invest in gold.

Gold Exchange Traded Funds, gold-based mutual funds, investment in gold mining companies, and buying gold notes — also called paper gold — are all options for investors to incorporate gold into their portfolios without having to physically protect and store the gold. These are great ways to gain the stability benefits of gold without the risks of holding physical gold.

Risks associated with non-physical gold investments include choosing an untrustworthy company or ETF to invest in, the chance of your investment depreciating to zero due to poor asset management, and the fact that what you gain in insurance against physical threats comes at the cost of liquidity.

Is Gold Good for Long-Term or Short-Term Investment?

On the whole, for the least risky approach, treat gold as a long-term investment. Investing in gold as a short-term asset will likely lead to disappointment.

The safest way to use gold is as a source of diversification and a hedge against inflation for your portfolio. If you want to take a more aggressive approach, you can tailor your gold investments to reflect your desired level of risk.

Whatever your strategy is, when you choose to invest in gold bars or coins, it is wise to have someone in your corner with a wealth of experience who can help you navigate the risks of investing in gold.

At Oxford Gold Group, we have the industry connections, expertise, and experience to help you design your gold investment strategy and secure the peace of mind that comes with a portfolio backed by gold. Call Oxford Gold Group today at 833-600-GOLD to start your gold investment journey.

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