Gold has risen nearly 40% over the past 12 months, more than double the S&P 500’s (SPY Quick QuoteSPY - Free Report) 19% gain. The precious metal is climbing due to uncertainty surrounding trade wars and tariffs, as well as massive purchases by global central banks. Continued volatility in the stock market has also led many investors to seek the safety of gold.

 

Gold purchases by central banks have surged in recent years, particularly after the U.S. froze Russia’s assets following its invasion of Ukraine. According to the World Gold Council, central bank purchases exceeded 1,000 tons for the third consecutive year in 2024.

 

Many central banks are now buying gold instead of U.S. Treasuries due to the rapidly rising U.S. debt and fiscal deterioration. They are also looking to diversify away from the U.S. dollar.

 

Rising geopolitical tensions, trade war uncertainty, inflation concerns, and safe-haven demand could keep gold at elevated levels this year.

 

Last year, gold struggled after Trump’s election due to a surge in the U.S. dollar and rising real Treasury yields. However, the dollar index is now near a two-month low, partly due to weaker-than-expected economic data. Meanwhile, real Treasury yields have fallen to their lowest levels since early December.

 

I believe gold deserves a small allocation in a portfolio, mainly for its diversification benefits. According to a Financial Times analysis, over the past 20 years, gold has provided better diversification benefits than bonds in an equity portfolio.

 

The SPDR Gold Trust (GLD Quick QuoteGLD - Free Report) is the largest and oldest gold ETF, favored by professional traders for its immense liquidity. It has an expense ratio of 0.40%.

 

The SPDR Gold MiniShares Trust (GLDM Quick QuoteGLDM - Free Report) and iShares Gold Trust Micro (IAUM Quick QuoteIAUM - Free Report) are among the lowest-cost gold ETFs, making them excellent choices for buy-and-hold investors.

 

For those interested in investing in gold miners, VanEck Gold Miners ETF (GDX Quick QuoteGDX - Free Report) and Sprott Gold Miners ETF (SGDM Quick QuoteSGDM - Free Report) are worth considering.

 

To learn more, please watch the short video above.