Gold has captured the spotlight in financial markets as its prices have soared over the past year, driven by geopolitical tensions and economic uncertainty. With returns on gold climbing approximately 42% over the past year and futures prices up 10% year-to-date, many investors are drawn to this precious metal as a potential safe haven. However, financial advisors caution against overexposure to gold, advocating for a balanced approach to investment portfolios.
The allure of gold as a refuge in tumultuous times is undeniable. Investors often flock to gold during periods of high uncertainty, perceiving it as a stable asset. This sentiment has been amplified by U.S. sanctions on Russia, which have acted as a "turbocharger" for gold returns since 2022. The SPDR Gold Shares fund (GLD), reflecting gold bullion prices, has risen about 11% in 2025, further enticing investors.
Yet, experts advise caution. Wells Fargo's investment models suggest a modest allocation to commodities, including gold, ranging from 2% for conservative investors to 7% for those pursuing aggressive growth. Lee Baker, a financial advisor, remarked, "It feels to me everyone is starting to get greedy as it pertains to gold." This sentiment echoes the wisdom of Warren Buffett's famous advice:
"Be fearful when others are greedy, and be greedy when others are fearful." – Warren Buffett
In terms of performance during crises, bonds have historically outperformed gold. This trend underscores the importance of diversification in investment strategies. The S&P 500, a key U.S. stock index, has risen about 1.5% in 2025 and 17% over the past year, offering robust returns for diversified portfolios.
Sameer Samana, a senior global market strategist, advises against chasing current gold returns. He suggests holding off on precious metals at their present elevated levels:
"Don't chase" gold returns, Samana said: "As a whole, you probably want to hold off on precious metals at [current] levels." – Sameer Samana
Physical gold ownership presents its own set of challenges. Investors must consider the costs associated with storing and insuring their bullion, which can amount to 1% to 2% or more of the gold's value annually. These expenses can erode potential returns and complicate portfolio management.
Despite the recent surge in gold prices, there are reasons for investors to remain cautious about expecting continued upward trends. Lee Baker expressed skepticism about future price increases absent significant geopolitical disruptions:
"There's no reason in my mind gold will continue to have a significant uptrend, barring — and I certainly hope not — some sort of protracted war," – Lee Baker
Financial advisors consistently recommend that gold should constitute only a small fraction of a diversified investment portfolio. Typically, an allocation should not exceed 3%, with many suggesting even lower percentages around 1% or 2%. This conservative approach minimizes risks while allowing investors to benefit from potential gains without overcommitting to a volatile asset.
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