Why You Should Add Gold to Your Portfolio Right Now

Gold has fallen about 12% from the peak of $5,354 an ounce it touched in late January. That's after the price of the yellow metal soared more than 180% over the past five years.

Much of that increase was due to central banks around the globe stocking up on gold in order to diversify away from the dollar in the wake of Russia's invasion of Ukraine and the U.S.'s response of freezing Russia's foreign exchange reserves. Russia's war on Ukraine continues with no end in sight, while the war in the Middle East is creating new tailwinds for gold, including rising inflation expectations and geopolitical uncertainty.

So why has gold dropped recently? It's at least in part because Turkey's central bank just dumped 58 tons of its gold -- about $8 billion -- on global markets to support its currency after the Iran war broke out. That drove the supply of gold up and the price down. Arab nations, meanwhile, are also likely selling gold reserves to beef up their defenses.

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Many factors driving gold higher look to remain in place

Yet when the war in the Middle East ends, many of the factors that were driving gold higher will remain in place. Inflation remains high and sticky, with rising energy costs now adding to prices directly -- at the gas pump -- and indirectly through higher costs for fertilizer and transport of goods, for example.

A barrel of Brent crude now trades at around $107. While oil prices are expected to come down when the war ends, they are likely to remain elevated long after the guns go silent, as much energy infrastructure and many strategic reserves have been damaged or depleted.

As for a return to geopolitical stability, it's anyone's guess when that will take place. Certainly, global trade will remain highly volatile. In the months that followed President Donald Trump's new tariff regime in April 2025, U.S. tariff policy changed more than 50 times, spanning rate increases and decreases as well as changes to which products were included in the tariffs. While the Supreme Court has struck down those tariffs, Trump has vowed to replace them.

My prediction is that once the current Middle East conflict is resolved, the massive gold selling we've seen in recent weeks will taper off while most of the other factors that support gold will remain in place. That should send demand for gold back up, and its price is likely to resume its upward ascent.

Right now, however, gold is selling at what appears to be a temporary discount. That makes it a great time to add some to your portfolio -- and there are several good ways to do so. One is the SPDR Gold Shares ETF (NYSEMKT: GLD), the world's largest physically backed gold fund, and another is the VanEck Gold Miners ETF (NYSEMKT: GDX), an exchange-traded fund that tracks the overall performance of companies involved in the gold mining industry.

Matthew Benjamin has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.