Gold prices skyrocket due to turmoil in the Middle East. What you need to know before investing

While the world market is in turmoil due to the Middle East war, gold It is once again attracting attention as a safe investment destination.

Precious metals are generally viewed as a diversification and store of value in times of turmoil. But before you jump, it’s important to know what you’re investing in and why.

“Gold may be one way to invest against geopolitical shocks, but there are certainly other ways to invest, such as global energy stocks and defense stocks,” said Barry Glassman, a certified financial planner and founder and president of Glassman Wealth Services in Vienna, Virginia, and a member of the CNBC Financial Advisors Council. “It will be interesting to see which parts of the portfolio hold up amidst this volatility.”

Gold prices have soared in recent days due to an escalation in the Middle East conflict sparked by a joint US-Israeli military attack on Iran and retaliatory attacks on Israel and other US allies around the Gulf region. The price of a troy ounce of gold rose above $5,400 overnight, but by Monday afternoon it had returned to the $5,300 range.

Experts say the price of gold could still rise this year, although it is down from its all-time high of $5,594 hit on January 29. “While the conflict-driven gold price rally will come and go, overall geopolitical risks are likely to remain at a boil,” JPMorgan analysts said in a new research note, contributing to their forecast for gold to reach $6,300 by the end of 2026.

“The market tends to give us clues as to what asset classes to hold during economic downturns and global uncertainty,” said Patrick Huey, a certified financial planner and owner and principal advisor of Victory Independent Planning in Naples, Florida. “As long as global disruption continues, I think gold will continue to do well.”

Gold is up about 23% this year already. By 2025, it has increased by about 64%. Compared to that, S&P500′Last year, it increased by 16.4%. The rise in prices is believed to be due to a variety of factors, including increased demand from both central banks and retail investors.

Huey says it’s important to know that there’s no guarantee you’ll make money investing in gold. “There were long periods where absolutely nothing happened to gold, and there were periods where it was very volatile,” he said. “And with gold, you can definitely lose money.”

Many financial advisors recommend keeping alternative investments, including gold, a small part of your portfolio. Huey said he puts between 5% and 10% of alternatives in his clients’ portfolios.

Many investors choose to invest in gold through exchange-traded funds rather than buying physical gold that they need to store. ETFs allow investors to gain exposure to precious metals without owning physical gold. Like all ETFs, they trade throughout the day like stocks. Most are passively managed, tracking the index and its performance, for better or worse.

There are several different types of ETFs that offer gold exposure, and it’s worth knowing about their tax treatment.

Some ETFs invest directly in gold bullion. SPDR Gold Share (GLD). Each ETF share represents a certain amount of physical gold.

If you invest in one of the ETFs through a taxable brokerage account, keep in mind that any gains you make on sale may be taxed differently than gains made in other investments such as stocks or bonds, Huey said.

Short-term capital gains (profits earned on assets held within one year) are subject to ordinary income tax rates ranging from 10% to 37%. But even if you hold a gold ETF for more than a year, typical long-term capital gains tax rates (0%, 15% or 20% depending on income) do not apply, Huey said.

Instead, the IRS treats gold as a collectible, subject to a maximum tax rate of 28%. This also applies to investing in gold through ETFs. Investors with higher tax rate income end up paying that tax rate.

Alternatively, you can buy an ETF that invests in gold futures contracts, such as the Invesco DB Gold Fund (DGL).

Huey said these funds use derivatives instead of holding physical gold, resulting in different tax treatment. Generally, the gains of these ETFs are subject to the IRS’s so-called 60/40 rule. Regardless of the holding period of the ETF, long-term profits tax, if applicable, will apply on 60% of the profits, and regular tax rates will apply on 40% of the profits.

Another way to invest in gold through ETFs is to invest in gold mining companies such as: VanEck Gold Miners ETF (GDX). Profits earned on these ETFs will be taxed at regular short-term and long-term interest rates.