Gold has historically been the metal that we as humans have fallen back on time and again when other forms of currency didn’t work.
There are very few things in the world that hold value as secure as the value of gold.
Many investors keep some amount of their investments in gold because of the stability this precious metal offers.
Gold serves as a good hedging base against inflation and deflation alike and can help many investors diversify their portfolio.
In this article, I am going to tell you whether investing in gold is good or bad and why you should think of gold as a powerhouse when it comes to safe investments.
Why Should You Invest In Gold
It’s A Safe Bet
If you’re a new investor, then you should invest in gold. The financial world can get confusing for even the most seasoned investors.
The volatility of stock prices, dividends, external market forces, and all the numerous factors that we use to measure capital gain and profitability can leave anyone leaving confused and overwhelmed.
Gold is one asset that often only rises in value throughout the years, and history stands in proof.
The current situation may not state the same, which is why many investors use gold as only a hedging instrument and nothing more. New investors can find investing in gold to be much easier and convenient.
Gold Does Not Follow The Stock Market Trends
As many investors say that it is not smart to put all your eggs into one basket, and therefore to invest in gold is a smart decision to make because it provides you with some form of security when the stock market goes down.
When the gold market goes down, your stocks can protect you.
Owning gold as your only investment is, no doubt, a risky thing to do because gold itself is very volatile and displays its share of market fluctuations.
Every form of investment has it’s pros and cons, and so does gold.
Historically gold has shown an increase in prices over the years, and it can be ideal for if you’re looking for an excellent asset to park your money in for a couple of years.
Gold has a 0.04% correlation with the stock market, which means that gold mostly does its own thing. Between Nov 30, 2007, and June 1, 2001, the S&P index fell by a considerable margin of 36%.
In this period, the price of gold rose by 25%. This example might be a dramatic one, but it merely emphasizes my point that gold negatively correlates with the stock market. Therefore, it is a much safer alternative investment for parking your funds.
You Don’t Just Have To Buy Gold Jewelry To Be A Gold Investor
Buying gold jewelry as an investment is a dumb financial decision to make. Gold jewelry has a high markup rate, and you will probably end up getting paid a lot less whenever you attempt to resale your gold.
Gold jewelry is more a collector item than an investment item.
The best way to owning physical gold is by keeping gold in the form of billions, bars, and coins. If you prefer keeping gold in the form of coins, then you should be aware that you will be given the markup cost to bear as well. Gold coins have to be processed and beaten into shape.
You will also have to find a safe place or rent a locker to store the gold. Selling the gold is also going to be difficult since you will have to bring your gold to a dealer, and that dealer will take the gold off your hands for a price that is lower than the spot price.
Another option that you can use to invest in gold is by buying a gold certificate. Gold certificates are issued by companies that own large deposits of gold.
This note is often for unallocated gold, but the company claims that it has enough gold to back up all the claim certificates that it has issued. Another paper exchange form of gold is by opting for an exchange-traded fund.
Exchange-traded funds deal with gold on behalf of their clients and directly purchase funds on behalf of their shareholders.
Another option that you can look at is future traded stocks for gold. However, I would strictly advise against it because this form of investment is incredibly risky, and many experienced investors stay away from futures contracts in gold.
Gold Is Known As A Crisis Commodity
Historically, gold has retained its value over the years successfully, and as a consequence, gained the reputation of a “crisis commodity.” Gold is an asset that people flee towards when economic or financial uncertainty arises.
Gold also tends to outperform other investments, and its price often rises when the confidence in government is low. Historically gold has a high intrinsic value that you can cash in on.
Supply Is Limited
Gold is a limited resource, and that is why you continuously see its value rising in the market. Post the 1990s, a significant chunk of gold supply has come in from the sale of gold by the central banks. The selling has slowed down over the years, which has managed to keep the prices of gold up.
Gold production is pretty low because all the big gold mines have already been excavated, and the remaining gold sources are so scaring and minimal in the quantity that the cost of their excavation is bound to supersede their value.
As markets are emerging, more and more people are looking to purchase gold, which will, in turn, cause the price of gold to go up. The increase in price means that you can derive much value from your investment.
There is a high demand for gold in economies like India and China, which means that there is always a high chance that the price for gold will increase.
Gold Is Considered To Be A Powerful Investment
When the dollar falls, people often run towards gold to securitize their assets. Gold can be said to be just an ordinary metal, but gold itself holds a sizable intrinsic value, which can be said to be more powerful than the value of the dollar itself.
The price of gold tripled in the period that led to the financial crisis. It doubled during the financial crisis and has been showing an overall increase in price ever since.
Some people keep all their retirement savings in gold under gold ira accounts.
How To Invest In Gold for Beginners
There are three ways through which you can invest in gold. You can buy a physical asset. You can purchase the shares of a mutual or an exchange-traded fund that replicates the price of gold, or you can go for trading in futures or purchase options from the commodity markets.
Below I’ve broken down each gold buying option in detail so that you can make an educated decision.
Buying Gold Bullion
Gold is more accessible in the bullion form. You can easily purchase gold bullions from an investor or a metals dealer or even from a bank or a brokerage firm. Bullion bars are available in all forms and sizes, from coins to bricks and even bars.
New investors commonly stick to gold coins because of their wide circulation. There are a few gold coin types that are widely circulated around the globe, and many investors prefer sticking to those.
The names for the commonly circulated kind of gold coins are the American eagle, the Canadian maple leaf, and the South African Krugerrand.
Buying Gold Funds
Although keeping gold is pretty easy, you can keep it in a locker or a safe, but some people think that it is a hassle to store so much gold. There is also the huge transaction fees and the storage cost plus the insurance cost.
For people who don’t want to be bothered with the storage and safety of gold, they can opt to store gold in the form of gold funds.
People can buy shares of the ETFs; each share of the ETF represents 1/10th of an ounce of the price of gold.
GLD’s also invest only in bullions that helps give investors direct exposure to the movement of the metals prices.
However, this form of investment is suspect too much higher risks, and a lot of different things influence the profit you can make.
Political factors, a company’s internal elements can contribute significantly to the end price. In the end, investing in ETFs is a highly risky game.
Buying Gold Futures Options
Seasoned investors often opt for this form of trading. Most investors who do not want to risk much capital might consider options on gold futures or options on gold exchange transfer funds.
Options can also be used if you’re thinking whether the price of gold is going up or going down.
How options work is that you buy the right to buy or sell an asset from a vendor at a future price at a set price. Like the name options, options represent that you have a choice in whether or not you want to buy the asset at a future pre-set date.
You are not obligated to exercise the option. The vendor charges a premium for selling off his right to sell the asset to anyone else during that time.
People buy options on estimates of whether the price of gold is going up or going down. If you guess wrongly, then the cost you incur is the premium that you paid to the vendor.