Gold has exceeded all expectations in recent years. Despite a bull market, gold has outpaced the broader benchmark S&P 500 index. It's up 124% over the past five years and over 63% in 2025, crushing the broader market.
After a historic run, gold finally took a breather and slipped below $4,500 per ounce, trading around $4,385, as of this writing. Gold hasn't exactly been the most popular asset in recent years, as most investors in the modern era lack experience investing in the commodity, especially on the retail side. After all, gold is historically not known for beating the market and doesn't have any yield, either.
However, with gold surging, it's hard for investors to ignore. After its recent retreat, what should long-term investors do now?
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Gold belongs in a diversified portfolio
Gold has historically been a safe haven, particularly when geopolitical concerns arise. However, in recent years, part of the argument has centered on the soaring U.S. government debt, which is now approaching $38 trillion. The U.S. government annual fiscal deficit is around $1.8 trillion.
While the U.S. dollar is the world's reserve currency and concerns about U.S. debt are not new, investors are increasingly concerned about the situation and believe it could lead to a significantly weaker U.S. dollar in the future. As some prominent investors have suggested, the U.S. may essentially have to inflate its way out of its high debt and outgrow it, which could lead to debasement of the dollar.
But inflation has already surged in recent years, and the debt continues to grow. Furthermore, central banks don't appear to have the same appetite for U.S. Treasury bonds as they once did; private foreign buyers are now the largest holders of U.S. debt.
The gold trade is expected to continue in 2026 and 2027, according to analysts at J.P. Morgan, who believe, according to the firm's website, "The long-term trend of official reserve and investor diversification into gold has further to run." J.P. Morgan analysts predict that gold will reach $5,000 per ounce by the end of 2026 and then approach $5,400 by the end of 2027.
I certainly believe that gold now belongs in a diversified portfolio. The U.S. is unlikely to get its debt under control anytime soon, and it has been a challenging task for the Federal Reserve to reduce its balance sheet, thereby removing the trillions of dollars of liquidity it has injected into the economy since the Great Recession. This flood of cash has inflated assets, and the risk of inflation remains.
It's difficult for me to predict long-term price targets, but I think holding at least some gold in your portfolio makes sense. The SPDR Gold Trust (GLD +0.44%) is one of the easiest ways to hold gold.
