Historically, gold is known as the world’s currency. Nowadays, it’s more than a currency as more investors appreciate the benefits of gold as an investment. Thus, investors diversify their investment portfolios by having gold in them.
If it’s your first time investing in gold, then you’re in for a treat. With the following things, you’ll understand better whether or not to invest in gold:
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1. You Can Invest In Many Forms Of Gold
One reason why gold is a choice for many investors is that you can buy it in many forms. No longer are you limited to buying gold coins or jewelry, which comes with the risks of spotting genuine jewelry from fake ones? Whether you want to own gold physically or in papers, you can do so through the following types of gold investments:
- Gold Mutual Funds: With gold mutual funds, you can invest in gold without researching individual companies owning or mining gold. Since you have a broker or a single entity investing in various gold mining companies, they’ll be responsible for taking care of your investment. Thus, you’re like investing in different gold mining companies, but all through a fund manager.
- Gold Mining Stocks: Similar to investing in gold mutual funds, gold mining stock investment is where you find individual gold mining companies to buy shares or stocks from. This requires in-depth understanding and research about the companies so you’ll know whether they’re good for long-term investments. Since you’re buying shares from such companies, you’ll gain profit if their business operations are successful. On the other hand, you may lose your investment in case the company goes bankrupt. To avoid such loss, invest in various gold mining companies with a long-standing reputation for yielding investment returns.
- Physical Gold: Aside from holding gold in papers, you can also directly buy physical gold. You may want to buy gold bars, gold coins, or gold jewelry. By doing so, you can directly keep the gold. However, owning gold bars requires proper storage to prevent devaluing them. Storing them in professional bank vaults may mean they’re properly stored, which can positively affect their price when you put gold bars on sale. However, that may also depend on what type of gold bar you choose to invest in. And, according to Oxford Gold Group, gold bars can also come in various weights as determining factors of their types.
2. Gold Investment Comes With Risk
Although gold investment comes with various benefits, there are still risks associated with it. One of which is the insurance and storage costs when buying physical gold. For instance, a gold individual retirement account (IRA) needs a depository to store your gold. While it’s possible to keep them at home, it still requires additional insurance to protect your gold from possible natural disasters or theft.
Moreover, investing in physical gold will not generate cash flow as it’ll only bring you profits when you sell them. You can’t earn quarterly dividends, but you can sell them at a higher price when their price is higher than the price you bought them from.
Most importantly, it’s best to treat it like other investments: value may go down any time. While history shows that gold’s value increases as years pass by, no one knows what the future price of gold is. Thus, it may be safe to invest in gold if you can tolerate these risks.
3. Gold Can Be A Good Hedge
Even with the risks when investing in gold, there are still benefits one can get from it, like using gold as a hedge in times of crisis. Normally, crises, like economic downfalls, can devalue a fiat currency. If you have cash as your assets, you may not enjoy its full potential as your USD$100,00 may only be worth like USD$50,000 during a crisis since prices of everything will increase.
But, with gold, you can use it to protect your assets because gold prices don’t usually plummet when other investment markets go down. For instance, stock prices may suddenly plunge down, but, in reverse, gold prices don’t. Gold prices usually go in the reverse direction from such markets.
4. Gold Has History Of Holding Its Value
Maybe, one of the reasons why gold has a bullish market in times of crisis is because it can hold its value over time. Even after decades, gold doesn’t melt or corrode, making it one of the best metals to invest in. Thus, different industries use it because of its unique color and beauty.
As times pass by, the value of paper currency declines due to inflation. On the other hand, gold’s value has increased throughout the years. For example, you bought an ounce of gold at USD$35 in the early 1970s. If you haven’t sold it since then, the value of your gold is now worth around USD$1,800. This means that your USD$35 has more value than when you kept it as cash.
5. Highly Liquid Assets
Another thing you should know about gold as an investment is its liquidity. This attribute refers to having a widely recognized or stable fair price in the market, allowing you to sell your investment easily.
With gold, there’s a recognized pricing mechanism that investors can refer to, known as the spot price. You can use the spot price whenever you plan to buy or sell your gold investment as this price is available at any time.
Moreover, the spot price is based on daily and ongoing trades, like that of stock prices. This works at a global market price, which means that the profit you earn can be as close to the spot price. Unlike collectibles, like baseball cards, classic cars, and fine art that can fluctuate easily, gold doesn’t. These collectibles rely on the demand and rarity at the moment, meaning they have poor liquidity. It may be hard to find a buyer who can give you an attractive price, unlike when you sell gold that has a recognized price worldwide.
Like all types of investment, gold has its risks. But, considering the things mentioned above, the benefits may still outweigh the risks. It may be safe to say that investing in gold has its potential to grow your investment portfolio while using it as a hedge against inflation. Thus, you may want to consider investing in gold to preserve the value of your assets, too.