Is Dollar Cost Averaging a Great Gold Investing Strategy?

Also known as “the constant dollar plan,” dollar-cost averaging (DCA) is an investment strategy that involves gradually investing a specific amount of money into assets. Whether investors purchase physical assets, ETFs, or stocks, these smaller investments help mitigate price risk and avoid market timing.

A common example over the past few years is the practice of buying a small, fixed amount of Bitcoin every single month. Instead of chasing the price and trying to time action, a certain amount of money is set aside (let's say $100) and set up to automatically buy Bitcoin at the same time every month.

This DCA approach is typically far less stressful, requires the least effort, and often still outperforms other strategies that rely on timing the market.

Fractional gold is one of the most advantageous DCA investments, and that’s especially true during market fluctuations. Thanks to its upward trajectory, DCA is an excellent gold investment strategy for budgets of all sizes.

The Biggest Benefits of Dollar-Cost Averaging

While you’re not going to turn a volatile market around, you can certainly make it work to your advantage. The following are true for just about any stock or asset.

1. DCA Spreads out Purchases

Most investors have fallen prey to investing too much at the wrong time. Dollar-cost averaging spreads out your purchases to avoid the volatility caused by share prices rising and falling. When practiced over the long-term, you can balance your cost per share and lower exposure to market volatility.

Put another way, sometimes investors just don't have the liquidity to purchase larger amounts of assets when they feel the timing is advantageous. Especially for those needing predictable, fixed budgets; DCA lets you gain exposure with many smaller bets over time, instead of needing the cash to make one larger bet at once.

2. Improves Average Pricing

Sure, prices can increase and decrease, but divvying purchases up over a regular frequency can maximize your chances of lower average prices. For longer-term growth, you’re looking for consistency.

It's important to note this approach to averaging your cost basis (or price paid per share) has the biggest potential benefits on assets that have high volatility. For more stable assets with a long-running historical track record of growth, the more you can buy at once, the better your cost basis will be -- even with DCA.

3. Removes the Emotion from Investing

It’s easy to get sucked into the hype machine, so it’s important to avoid buying at market tops and selling during bottoms. Sticking to dollar-cost averaging will keep you from emotional investment. While a knee-jerk reaction might occasionally help you with quick decisions, gold investing is about a steady long-term.

4. No Need to Time the Market

If you follow a DCA plan, you don’t need to spend hours reviewing the market. Honestly, it’s probably better to be oblivious about gold spot prices. You’re investing the same amount every single week or month, and you believe in gold's future value – that’s all you really need to know.

The Benefits of Dollar-Cost Averaging for Gold

Even a small gold investment budget can help diversify your portfolio over the long-term. Gold is ideal for dollar-cost averaging for a variety of reasons:

1. Price Volatility

When the stock market is leaning more bearish, investors tend to sell riskier holdings and head toward safe haven assets like gold. When this happens, gold spot prices almost always rise. Sure, gold prices can fluctuate for plenty of reasons (e.g., inflation, interest rates, war), but the long-term trajectory is overwhelmingly positive.

By purchasing gold when prices are both high and low, it can average things out (and ideally earn you a profit).

2. Long-Term Growth

If you’re looking for short-term trading opportunities, this isn’t it. Dollar-cost averaging works better for assets with long-term growth potential (like gold). DCA encourages investors to build their wealth gradually without having to time the market.

Pssst. You might already be using dollar-cost averaging and not even know it. Many retirement plans–like 401ks– use the exact same methodology.

3. Hedge Against Inflation

For centuries, gold has been the most popular hedge against inflation. When fiat currency loses its purchasing power and bonds underperform, gold’s value can increase dramatically. By buying gold over time with DCA, you can build up a dependable asset during times of instability.

4. Accessibility

A regular purchasing schedule keeps you fiscally responsible – especially when finances are tight, or budgets require approval. But smaller spending plans don’t mean insignificant investments: MetalMark provides physical fractional gold to investors of all budget sizes.

Dollar-Cost Averaging in Action: Investing in Gold

Say that you’ve got $500 to invest every month. You’ve decided that you’re going to diversify your portfolio with physical gold (great choice). Because gold’s spot price constantly changes, that $500 will get you a different amount each month.

• Month 1: Gold is priced at $2,000/oz → $500 buys 0.25oz
• Month 2: Gold drops to $1,500/oz → $500 buys 0.33oz
• Month 3: Gold rises to $2,500/oz → $500 buys 0.2oz
• Month 4: Gold drops to $1,800/oz → $500 buys 0.28oz
• Month 5: Gold rises to $2,200/oz → $500 buys 0.23oz

Different spot price scenarios can significantly affect DCA outcomes. When gold prices go down during bearish trends, it greatly benefits dollar-cost averaging. Conversely, if the spot price rises consistently, DCA can result in a slightly higher average cost.

Calculating DCA

You don’t need a dollar-cost averaging calculator to handle this equation. After five months, you’ll have invested $2,500 and now hold 1.29 ounces of gold. The average price per ounce over these five months is $2,000.

When averaged out over five months, dollar-cost averaging has helped you obtain gold at a cost below the average price.

Note: If gold prices happened to rise to $2,100 per ounce (it’s not impossible), your holdings would now be worth $2,709. That’s a profit of $209 – without having to time the market.

How to Determine a DCA Plan for Fractional Gold

1. First you need to choose your fractional gold product., whether that's digital or physical. Make sure they're from a legitimate company.
2. Choose an amount that you can safely invest and the frequency you'll be investing.
3. Invest the same amount every week or month. Ignore gold prices (but be confident any time there's a decline).

What's the Best Frequency for Dollar-Cost Averaging?

There’s no one-size-fits-all approach for choosing a DCA time, but we think weekly or monthly is best. The important thing is to determine an amount that you can part with–then stick to it.

Should I DCA Weekly or Monthly?

Either works, but it really depends on your financial situation and what type of investor you are. Monthly investors might want to focus on longer-term growth. Weekly investors might prefer weekly frequencies to take advantage of market volatility.

Tip: Whenever you receive your salary, set up a reminder to purchase fractional gold. Some sites will let you set automatic deductions from your bank account.

Are There Drawbacks to Dollar-Cost Averaging?

All gold investment strategies come with some drawbacks. But when you invest wisely in fractional gold, it can be easy to turn these “disadvantages” into advantages.

Better for Long-Term Investment

Gold values are unpredictable over the short-term but have consistently risen over long-term. Experts recommend holding these assets for at least 3 years.

Lower Returns Than Lump Sum Investments

If you’re investing large amounts of money and the market rises, you stand to earn more money. Sure, that makes sense. But the issue here is having a large sum of money to begin with.

Want to know why fractional gold investments have skyrocketed in the past few years? Investors with low-risk tolerance can make smart, gradual investments if they stick to their plan.

Premiums & Storage Costs

Multiple fractional gold purchases will incur repeated transaction fees while physical gold investors should also expect to pay for premiums and storage costs. To weigh these advantages and disadvantages, we’ve dedicated an article to the many types of gold investments.

DCA vs. Lump Sum

If an asset value declines at least once during your investment period, dollar-cost averaging will have better results than lump sum purchases. In other words, it’s good news whenever the gold market declines.

There are a few reasons to choose dollar-cost averaging over lump sum:

• Market trends are lower during the purchase phase.
• The investor is cautious of high-risk investments.
• The investor has a smaller budget.

Over the long-term, it’s unlikely that DCA will ever earn you more than lump sum – especially when you factor gold premium prices in. Sure, it’ll cost investors more to gradually buy into this market. In a perfect world, everyone would have enough money to take “the lump sum route.”

Example of Dollar Cost Averaging and Lump Sum

Let’s say that you started investing in May 2024. Gold prices were on a clear upward trajectory:

• May 6th: $2,302.10
• June 6th: $2,328.85
• July 6th: $2,356.15
• August 6th: $2,406.45
• September 6th: $2,495.88
• October 6th: $2,651.15

If you bought $500 of gold each month for these 6 months through DCA, you'd have 1.2721 ounces of gold now. That's a total investment of $3,000 spread out over 6 months.

With lump sum, that same $3,000 invested all at once in May would mean you'd have 1.303 ounces of gold now.

So, lump sum maximizes your return. Does that mean you should wait to pool your resources so you can make larger purchases instead of DCA?

Well, not really. Think about it: if in May you waited 6 months to accumulate the $3,000 to invest as a lump sum in October, your cost basis for that gold would be at a 6-month high. If you had invested monthly instead, your average cost basis would be lower than the 6-month high, meaning you make more profit per ounce than if you had waited.

Lump sum early if you can. If you can't, DCA.

Is Dollar-Cost Averaging with Gold Guaranteed?

If you’re an investor, you know there’s always going to be some risk involved. You might feel like you’re missing out on opportunities when the market dips, but stick to your schedule: Things should average out over time.

How Much of My Investments Should Be in Gold?

Many financial consultants maintain that a solid investment portfolio is made up of 10% precious metals. However, plenty of modern investors believe that portfolios should include between 15-20% of safe haven assets. Gold gets special consideration here, as its value to society is only increasing with our reliance on technology.

Is Dollar-Cost Averaging the Best Way to Invest in Gold?

Gold is an amazing long-term investment, but the per-ounce cost is out of reach for many investors. Using DCA as a gold investment strategy can help you gradually accumulate assets at a better average cost per ounce (and without the risk).

Even Warren Buffet uses dollar-cost averaging.

"Keep buying it through thick and thin - and especially through thin."

Is Gold a Safe Investment for Small Budgets?

Yes, without question. The current trajectory of gold prices is on the rise (and there’s no sign of that market going down). Sure, there might be some occasional dips in asset prices, but gold is all about long-term investment. And gold has been valued by humanity for all of human history.

Fractional, Physical Gold for Portfolio Diversification

MetalMark mints fractional gold products that are as valuable as they are beautiful. These innovative 24-karat gold bills are flexible, easy-to-store, and offer the same advantages as other gold investments. Minted with the same anti-counterfeiting measures used by major world currencies, you’ve got a rare store of value that’s yours and yours alone.