Is Gold Liquid? Yes and Here's Why

You may have heard that gold is a liquid asset. This is true: gold's high liquidity is one of its most appealing characteristics as an investment. But what does it mean for gold to be liquid?

In basic terms, financial liquidity is a measure of how easy it is to sell a given asset for its full market value. Highly liquid assets can be sold (i.e. liquidated) quickly.

Below we will define the different types of liquidity and compare how liquid various investment assets are.

What Is Liquidity?

There are two types of liquidity.

Market liquidity is a broad measure of how easy it is to sell into a given market or sector without dramatically impacting prices. A liquid market is one with lots of willing buyers and sellers, and thus tight price spreads. For example, stock markets and public markets for Treasury bills are generally considered to be deeply liquid.

Financial liquidity also measures the ease of selling for full price (i.e. how quickly you can do so), but with regard to a single asset. This could be a share of an individual company, a bond, a rental property, a gold coin, an exchange-traded fund (ETF), and so on. Sometimes this is called transactional liquidity or market-making liquidity.

Both market liquidity and financial liquidity are similar concepts, they just apply to different scales. Financial liquidity applies to a specific asset, while market liquidity applies to an entire asset class or market sector. In the event of a financial crisis, both forms of liquidity tend to dry up.

Gold is very easy to sell in virtually every place in the world.

The Benefits of Gold Being Liquid

Investments that can readily be sold for full value are often described as “liquid assets.” This is an important consideration for anyone's personal finances. No matter how high an individual's net worth is, it may be difficult to raise cash quickly if a large portion of one's wealth is held in illiquid assets.

Essentially, the most liquid position you can be in financially is to hold most or all of your wealth in cash. You may hear this referred to as having "dry powder": cash on hand that can be immediately used. This includes bank accounts (checking accounts, savings accounts) as well as legal tender. Of course, keeping all or most of your net worth in cash is not prudent from an investing and wealth preservation standpoint. The point remains that nothing is as liquid as cash (or cash equivalents).

Gold and silver are both highly liquid. They are very easy to sell at any given time or place. You always know roughly what your investment is worth simply by looking at the spot prices of the metals. They can literally be sold "on the spot"—and you won't have to sell them at a steep discount to the current price.

Compare this to some common investments that have poor liquidity. Art, jewelry, collectibles, and now non-fungible tokens (NFTs) may have a very high value in a given moment, but they are usually difficult to sell for that full price in a timely manner. You have to wait to find a willing buyer or accept a much lower price in order to liquidate the investment.

Examples of highly liquid (and highly illiquid) investments:

liquid assets:

illiquid assets:

The Importance of Holding Liquid Assets

Liquid assets tend to be lower risk, but they may also offer lower returns. This low risk profile makes liquid investments a key component of portfolio diversification. Higher risk investments can offer far greater returns, so the ideal balance is some mix of both.

In this sense, gold and silver offer a preferable alternative to holding a large cash position. The precious metals are extremely liquid, but they also provide a degree of protection from inflation, which cash obviously does not. Over time the purchasing power of that cash is eroded due to inflation.

Read more about investing in precious metals from the experts at Gainesville Coins:

Investor Resources for Understanding Gold, Silver, and Precious Metals

5 Ways to Manage Risk When Investing in Gold

5 Safe Investments During a Recession

Navigating the 2024 Gold Market: Trends, Opportunities, and Risks

Gold Bars vs. Gold Coins: Which Should You Buy?

Gold ETFs vs. Physical Gold: Pros, Cons, & What to Know