Up 9% in the Past Month, Is It Time to Start Buying Gold Again?

Gold is one of humanity's oldest stores of value. It was often used as a means of exchange in the past, but investors now hold the shiny yellow metal as a hedge against economic and political uncertainty, both of which are at heightened levels right now.

Gold soared to a fresh all-time high of over $5,400 per ounce in January. It then spent several months consolidating its gains and lost over one-quarter of its peak value. In light of the elevated inflation rate, the raging geopolitical tensions in the Middle East, and the upcoming U.S. midterm Congressional elections, the yellow metal has now climbed by 9% over the past month.

Those uncertainties are likely to persist for at least the next few months, so now might be a good time to start buying gold. Purchasing physical metal is the surest way to profit from any potential upside, but an exchange-traded fund (ETF) like the SPDR Gold Shares ETF (NYSEMKT: GLD) can be a more convenient alternative.

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Conditions favor more upside in gold

Some of the world's best investors are split when it comes to owning gold. Hedge fund managers like Paul Tudor Jones and Ray Dalio often recommend adding it to a diversified portfolio, whereas Warren Buffett always avoided it because it produces no revenue or earnings. Assets like real estate and stocks can produce consistent income, so they often grow in value independent of inflation. Gold, on the other hand, produces nothing.

Gold's value is often tied to its scarcity. Just 220,700 tons have been extracted from the Earth throughout human history, compared to over 1.7 million tons of silver, and billions of tons of iron ore and other commodities. Gold supply also grows at a very slow pace of 1% to 2% annually, and at some point in the future, there won't be any left to mine. This gives central banks, governments, and investors confidence in the yellow metal's ability to maintain value.

Gold used to underpin the entire financial system. The U.S. government abided by the gold standard until 1971, which limited its ability to print paper money unless it had an equal amount of physical metal reserves to match. After the government abandoned this mechanism, money supply exploded, causing the U.S. dollar to lose 90% of its purchasing power. As a result, gold has soared in value in dollar terms.

Gold Price in U.S. Dollars data by YCharts.

A rapid increase in money supply often causes inflation, and so does an increase in energy prices. Investors are navigating both of those things right now. The U.S. government ran a budget deficit of $1.8 trillion in fiscal 2025 (ended Sept. 30), and it's on track to exceed that in fiscal 2026. Plus, a barrel of West Texas Intermediate crude oil currently trades for over $85, a 48% increase from where it started the year.

This inflationary environment is quite bullish for gold prices, and conditions could soon become even more favorable. Paul Tudor Jones warns that throughout history, governments have often tried to inflate away their debts by devaluing their domestic currencies. By pumping money into the economy, wages and asset prices experience a sharp rise, leading to more tax revenue. This makes a ballooning national debt easier to manage.

With the U.S. national debt about to cross $40 trillion and budget deficits showing no sign of shrinking, it seems perfectly logical to expect higher gold prices from here.

Investors should temper their expectations

Gold delivered a blistering return of 64% during 2025, but that certainly isn't normal. It has averaged a more modest compound annual return of 7.8% over the last 50 years, which is a more reasonable target for investors.

Plus, it's important to note that elevated inflation tends to lift all asset prices. As I mentioned earlier, stocks can also generate internal growth, which is why the S&P 500 (SNPINDEX: ^GSPC) has comfortably outperformed gold with a compound annual return of 11.9% over the last five decades.

That's why it's important to stay diversified. Income-producing assets like stocks and real estate should be the primary focus because of their superior returns, but owning a small amount of gold can be beneficial when political and economic uncertainty are particularly high.

Owning physical gold might seem like the obvious way to go, but this strategy comes with expensive storage and insurance costs. Buying an alternative like the SPDR Gold Shares ETF can offer the same returns without any of the inconveniences. It can be bought and sold instantly through any major investing platform, and with an expense ratio of 0.4%, the annual cost of ownership is always predictable.

Anthony Di Pizio 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.