How Much Gold Should I Own?

If you’re new to gold investing, you might be wondering: how much gold is an ideal amount to hold? The answer, unfortunately, isn’t always straightforward.

Some investors look to gold as a buffer against inflation while others see it as a tangible asset that can preserve wealth over generations. The ideal gold allocation for you will depend on your personal investment strategy, financial goals, and the level of protection you’re looking for.

In this guide, we explore how much gold you should own, including gold’s role in an investment portfolio, why you should add gold to your portfolio, how much of your portfolio should be allocated to gold, and two methods to help you discern how much gold you should buy.

Gold’s role in an investment portfolio

Gold holds an important role in a well-balanced investment portfolio, offering both diversification and a buffer against economic turbulence. Unlike other asset classes, like stocks, bonds, and real estate, gold tends to retain its value – and sometimes increase in value – when other markets falter. This makes it a reliable hedge during periods of inflation and stock market downturns.

While gold won’t replace traditional assets in an investment portfolio, it provides a valuable supporting role that can protect against market volatility and inflation. By adding even a small percentage of gold to your portfolio, you can reduce risk and potentially enhance returns.

Why you should add gold to your investment portfolio

The benefits of adding gold to your investment portfolio include diversification, hedge against inflation, liquidity, and geopolitical hedge.

1. Increase diversification

Gold’s low or negative correlation with traditional assets like stocks and bonds makes it an effective portfolio diversifier. Unlike other assets, gold tends to maintain, or even increase, in value when other markets face declines.

During financial crises, like the 2008 Global Financial Crisis and recent downturns in 2020 and 2022, gold’s value climbed while equities and other assets struggled. In fact, during the 2008 GFC, gold prices rose by 21% as the value of equities and other risk assets plummeted. We saw the same behaviour repeat in 2020 and 2022’s equity market downturns.

By moving independently of other assets, gold helps reduce portfolio volatility and offers a more balanced, risk-adjusted return. It won’t just perform well during turbulent times, either – gold can also deliver positive correlation with equities and other risk assets during favourable markets, too.

2. Hedge against inflation

Gold is widely known to be a hedge against inflation, capable of maintaining and even increasing its purchasing power during high-inflation periods.

As a store of value, gold helps protect wealth by hedging against both price inflation and currency devaluation (monetary inflation). This is largely attributed to the fact that its price is influenced by more than inflation alone – factors like interest rates and supply/demand also play a role. Historical data shows that, in periods when US inflation was between 3% and 5%, gold’s price increased by an average of 8% per year. Gold’s price increase was even more significant during periods of higher inflation, rising by an average of 16.2% per year.

Since 1971, gold has consistently outpaced both the US and global consumer price indices to not only preserve wealth, but grow it.

Learn More: Exploring the Role of Gold as an Effective Hedge Against Inflation

3. Performance across economic cycles

Gold’s unique role as both a consumer good and investment asset makes it valuable in all market conditions. During economic downturns, gold’s appeal as a safe-haven asset drives demand, while in economic expansions, gold’s price is bolstered by consumer demand for gold in jewellery and technology.

This dual-purpose nature means gold can offer consistent, long-term returns – it will protect wealth in challenging times and grow wealth during prosperous ones.

See: Gold vs Shares - FTSE 100. Should I buy physical gold over FTSE 100 shares?

4. Liquidity

The gold market is highly liquid, surpassing even major financial markets like the Dow Jones. In 2023, gold’s daily trading volumes averaged around US$163 billion per day, a rate that compares to US Treasury Bills and far outpaces OTC spot contracts and gold futures.

This highly liquid nature makes it easy for investors to buy and sell gold, even during volatile times when other assets might be difficult to trade. It also means investors can meet financial obligations when less liquid assets are mispriced or tricky to sell.

5. Geopolitical hedge

Gold also acts as a safeguard during times of geopolitical instability. For example, after the Ukraine war started on February 22, gold’s prices surged by 4% within a month. As a non-fiat asset, gold often counterbalances assets linked to government currencies, allowing investors to protect their wealth against political risks and related market fluctuations.

Although various factors impact gold’s price beyond just geopolitical stress, history shows that it frequently responds positively to heightened geopolitical tensions.

See More: Why Buy Gold? Reasons to Invest in Physical Gold Bullion

How much of my investment portfolio should I allocate to gold?

There’s no universally agreed-upon perspective when it comes to how much gold to hold in your investment portfolio – it all depends on your personal views on market risks and economic conditions. That said, financial advisors often suggest allocating 5% to 10% of your investable assets to gold bullion. Others recommend as much as 10% to 20% (not including home equity). For others still, a more conservative 3% to 5% is ideal for long-term investment portfolios.

One strategy for setting your gold allocation is to mirror its representation in worldwide financial assets. According to the World Gold Council, all the gold ever mined amounts to about $7.5 trillion, or roughly 4% of the global stock, bond, and gold markets combined. This 4% allocation can serve as a good baseline for your portfolio.

Another strategy argues that thinking in percentages instead of value can be detrimental, especially if you have a small portfolio. In many cases, you’d want to sell your gold during a financial crisis and use it to supplement your income or buy an undervalued asset. With this in mind, it can be more useful to evaluate your precious metal holdings in terms of ounces rather than percentages. To do this, ask yourself ‘How much gold would I need to support my standard of living in a crisis?’ and use that to guide your decisions.

See Similar: What is Comex?

How much gold should I own?

The amount of gold you should buy almost entirely depends on your investment goals, timeline, and budget.

In the two tables below, we break down potential gold purchases based on a range of monthly investment amounts (first in troy ounces, then in pounds). Each table shows how your cumulative gold holdings could grow over different investment durations, from 6 months to 5 years. We then offer two different methods to decide how much gold to buy, using these tables as a visual guide.

Note that our tables assume gold prices will keep up with inflation, however based on past experience, gold will likely surpass the Consumer Price Index (CPI), meaning you might need less than what we show.

MONTHLY PURCHASE IN £	GOLD OUNCES	DURATION OF YOUR GOLD INVESTMENT
		6 mths	1 year	18 mths	2 years	3 years	4 years	5 years
£500	0.24	1.44	2.88	4.32	5.76	8.64	11.52	14.4
£1,000	0.47	2.82	5.64	8.46	11.28	16.92	22.56	28.2
£2,000	0.97	5.82	11.64	17.46	23.28	34.92	46.56	58.20
£3,000	1.42	8.52	17.04	25.56	34.08	51.12	68.16	85.20
£4,000	1.90	11.4	22.8	34.2	45.6	68.4	91.2	114
£5,000	2.37	14.22	28.44	42.66	56.88	85.32	113.8	142.2
£10,000	4.75	28.5	57	85.5	114	171	228	285
£20,000	9.51	57.06	114.12	171.18	228.2	342.36	456.5	570.6

Based on a gold price of £2,103 / oz.

MONTHLY PURCHASE IN £	GOLD OUNCES	DURATION OF YOUR GOLD INVESTMENT
		6 mths	1 year	18 mths	2 years	3 years	4 years	5 years
£500	0.24	£3,000	£6,000	£9,000	£12,000	£18,000	£24,000	£30,000
£1,000	0.47	£6,000	£12,000	£18,000	£24,000	£36,000	£48,000	£60,000
£2,000	0.97	£12,000	£24,000	£36,000	£48,000	£72,000	£96,000	£120,000
£3,000	1.42	£18,000	£36,000	£54,000	£72,000	£108,000	£144,000	£180,000
£4,000	1.90	£24,000	£48,000	£72,000	£96,000	£144,000	£192,000	£240,000
£5,000	2.37	£30,000	£60,000	£90,000	£120,000	£180,000	£240,000	£300,000
£10,000	4.75	£60,000	£120,000	£180,000	£240,000	£360,000	£480,000	£600,000
£20,000	9.51	£120,000	£240,000	£360,000	£480,000	£720,000	£960,000	£1,200,000

Based on a gold price of £2,103 / oz.

Here’s how to use the above tables to understand how much gold you should buy:

Method 1: Set aside a monthly budget

Set aside a reasonable monthly budget that you can use to start building your gold portfolio. You can then use this amount to gauge how long it will take you to reach your investment goals.

For example, if you can dedicate £1,000 a month for gold purchases, you would have around 28 ounces of gold in five years’ time.

Method 2: Define a total budget

Think about the total budget you want to dedicate to physical gold and consider your options. For example, if you want to reach £48,000 in gold, you could:

• Invest £1,000 per month for four years
• Invest £2,000 per month for two years
• Invest £4,000 per month for one year.

Is it worth adding gold to my portfolio?

Adding gold to your investment portfolio can increase returns and provide a buffer against economic downturns. Let’s illustrate this with two hypothetical portfolios – one with a 5% gold allocation and one without gold – to see how they would have compared over the past 3, 5, 10, and 20 years based on US-dollar returns.

		3 YEARS		5 YEARS		10 YEARS		20 YEARS
		NO GOLD	5% GOLD	NO GOLD	5% GOLD	NO GOLD	5% GOLD	NO GOLD	5% GOLD
ANNUALISED RETURN		2.5%	2.6%	7.7%	7.9%	5.5%	5.6%	6.3%	6.4%
ANNUALISED VOLATILITY		11.6%	11.3%	11.9%	11.5%	9.5%	9.2%	9.9%	9.6%
RISK-ADJUSTED RETURN		21.5%	22.8%	64.5%	69.2%	57.9%	60.5%	63.3%	66.9%
MAXIMUM DRAWDOWN		-19.9%	-19.3%	-19.9%	-19.3%	-19.9%	-19.3%	-35.3%	-33.0%

Table Source

From the above table, we see that adding gold investments to a traditional portfolio provides more stability during economic downturns, reducing volatility and enhancing returns. The hypothetical portfolio with 5% gold allocation saw higher risk-adjusted returns and smaller drawdowns compared to the portfolio without gold. This is just one example of many that illustrate gold’s benefits in a well-rounded investment portfolio.

Continue Reading: Is There a Correlation Between the US Dollar and Gold Prices?

Start investing in gold bullion today

Physical gold has long been seen as a way to preserve wealth and diversify investments. With its role as a ‘safe haven’ asset, gold is a prized commodity that protects investors during economic downturns and geopolitical instability. But there’s no one-size-fits-all answer when it comes to how much gold you should own. The right amount for you depends on your personal financial objectives and what benefits you’re hoping to get.

If you’re ready to strengthen and protect your investment portfolio with gold, you’re in the right place. At StoneX Bullion, we offer a wide range of investment-grade and other precious metals gold bullion from the world’s best known mints. Whether you’re seeking the practicality of gold bars or the unique history of gold coins, browse our collection and start building your wealth today.