To diversify assets, individuals and families are shifting towards investing their hard-earned wealth in precious materials, with gold being common. With sudden and violent shifts globally, it is important to consider investing your wealth into these historically safe assets. Moreover, gold will help you balance your overall portfolio as an investment commodity if you invest in it right.
With any gold companies going public, you have many arrangements of choices to consider. If you are ready to get into the world of investing, you need to include gold in your alternatives. With increased volatility and difficult predictions of other newer stocks, gold investment has become more attractive. This is because gold is an investment with a physical value.
If you have decided to invest in gold, there are important things you have to understand. This guide is to help you learn how to invest in gold in terms of investment options, best gold companies, how to buy gold, and much other crucial investment information.
Advantages of Investing in Gold
A Hedge against Inflation
Investments in debt funds and stocks tend to underperform during inflation periods. However, due to its direct relationship with inflation, gold has historically performed well during inflation.
Gold gives you an important opportunity to diversify your investment portfolio hence reducing the investment risk. It is a convenient and easy way of diversification. There is an inverse relationship between gold, currencies, and the stock market meaning it moves in an opposite direction to the movement in the stock market and currencies.
Lower Tax Rate
Physical gold tends to have a lower income tax on collections, especially where you hold your gold for more than one year. In this case, the tax rate does not exceed 28%, but this is not the case with gold held for less than a year. In such a case, the physical gold will be taxed as ordinary income.
One important advantage of gold is its easy conversion to cash whenever an investor is in need. This is not so with other investments.
Physical gold acts as a form of physical insurance, especially in times of economic distress when the economy collapses. Moreover, being a real asset, gold can be used for barter transactions in such times.
Holding Value for a Long Time
Being a commodity, physical gold has an intrinsic value as opposed to currencies. For this reason, gold’s underlying value does not change a lot even when its price fall. Therefore it has inherent value over time.
Difficulty in Storage
Being of high value, storage is the biggest issue of holding gold as it will require a carefully guarded storage facility. In addition, you may have to pay extra charges like locker maintenance if you choose to store them in a bank locker.
Buying physical gold comes with extra costs like safety and security costs, transportation and insurance, and other storage costs.
It is not a Passive Investment
This means that investing in gold does not earn frequent interests and investments like stock and bonds. As a gold investor, you can only earn from your investment when you sell your gold.
High Chances of Fraud
The physical gold market tends to have a challenge of fraud. It is, therefore, necessary to buy your gold from reputable dealers and take the necessary precautions by doing extensive research about the gold market before buying.
Losses Due to Price Correction
Most investors will be attracted to invest in gold at high prices when the stock market drops and the value of gold increases. However, this might cause investors to undergo investment losses when the tension reduces, correcting gold prices.
Importance of Investing in Gold
Gold is one of the world's oldest commodities hence attracting more investors than other assets. In addition, many investors are turning to gold as inflation rises in the stock market. Unlike other investment instruments like bonds, stocks, and currencies, physical gold is not affected by inflation.
Today's volatile stock market makes many investors question the benefits of investing in stocks and ask whether gold is gold investment and whether they should consider such an investment. For many years gold as an investment has been regarded as a store of value hence considered a good investment.
Gold is also a good investment in the face of rising inflation fears as it is a hedge against rising prices. It is also an important investment asset in diversifying your portfolio, and it provides investors with an incredible array of investment options. However, before investing in gold, it is important to ensure that it properly fits into your investment portfolio by checking your long-term investment strategy and investment goals.
You will also have to understand how gold works because the risk of losses increases if you do not know how the investment operates. Gold is a suitable investment for investors who can handle rough rides with many risks, but there are substantial potential returns at the end of the road. It is not a suitable choice for investors who are risk-averse and very anxious about the performance because of the many shifts in this investment caused by the frequent and rapid shifts in value.
It is beneficial to invest in gold because while other investments like stocks will be falling and deteriorating, the value of gold will be increasing hence gains to investors. The volatility of gold should not discourage you because the gold investment will benefit you for a long time, even when other stocks lose value. Gold allows you to choose what you love if it's physical assets like gold jewelry and bullion. Your preferred way of diversifying your portfolio is acquiring shares in a gold mining company or gold funds.
How to Buy Gold
Gold has grown to become the world's currency of choice since ancient civilization up to the modern era. Today, many investors are attracted to buy and invest in gold because it a hedge against inflation and political issues. As an investor who has decided to start investing in gold, you may be wondering where to start. Well, here is a guide on how you can buy your gold and the options available for you.
There are many ways of buying gold and gold products, with each product being used to achieve specific investment objectives different from the others. Some gold products will be used to profit the investor for the long term, while others are invested in the short run and then sold in the market to earn returns. You must consider what type of investor you are, whether long-term or short-term, before choosing an investment option.
It is important to get yourself fully prepared before buying gold by understanding the different gold investment options. Opportunities in investing in gold include:
If you consider buying physical gold like gold coins and jewelry, you may consider estate sales and stalking pawnshops to find your stash of gold easily. You can also buy your gold online at the comfort of your home, for example, using Robinhood. It is necessary to scrutinize these online platforms to ensure they are trustworthy and reputable sources.
The most direct way of investing in gold is Buying physical gold products like coins and jewelry is the most direct way of gold investment, but you need to be careful about the storage and safety of your gold because they can be illiquid. You can seek brokerage services and buy in the derivative markets to own gold and other gold products.
When investing in gold, it is advisable to consider other stocks to hedge your investment because the gold market can be volatile. You will be rendering yourself vulnerable to market shifts by only investing in one type of asset.
There is also an option of indirectly owning gold where you invest in the gold mining companies by acquiring its shares. These are the many ways of owning gold; what remains, therefore, is for you to decide the most suitable method for your investment portfolio carefully.
Remember not to put all your money in buying gold stocks because gold does not provide a quick return on investment even though it shields you from inflation and political pressures. In addition, it would be best to be careful not to sink your investment funds when introducing gold to your investment portfolio.
Buying Gold Bullion
This is the most common and easiest way of directly owning physical gold. Gold bullions have often been mistaken for large gold bars by many people. However, gold bullion relates to the certified purity and weight of gold that is the form that is pure or nearly pure. Gold bullions include gold bars and coins of any size with attached serial numbers for security reasons.
If you want to buy gold, you need to be careful because the gold market is full of fraudsters who may sell you fake gold. To be sure to buy real gold, you need to go through a reputable gold seller or dealer. The dealer should have a connection with a government mint to be sure to acquire real gold.
Gold bullion is easily accessible because it can be purchased from dealers, banks, and brokerage agencies in coins or bars. However, it is advisable to consider small-sized bullion for more liquidity because heavy gold bars of, say, up to 400 troy ounces are illiquid despite being impressive in size hence expensive to buy and sell.
If you have settled for physical gold bullion, you need to be equipped with a storage facility with guaranteed safety. However, the advantage of such an investment is that you will have hands-on and direct exposure to your raw gold as an investor.
Gold bullion bars and coins can be bought locally and physically, or online. Before buying gold bullions, whether in bars or coins, you need to be sure about the purity levels; it should be at least 99.5 pure gold. In addition, they should be minted by reputable and re-known gold minters like Royal Canadian mint and Valcambi.
After being sure about the purity of the bars and the reputation of the mint, the next step is trading rather than buying. You may use whichever currency you have in exchange for the gold; almost all major currencies and cryptocurrencies are allowed. It is vital to be informed of the exchange rates so that the sellers and the dealers may not take advantage of you.
If you are not sure about the dealer's reputation, you will need a third party's appraisal on the gold, but you do not need such an appraisal if you are sure. To avoid ending up with fake gold, always check for the 99.99% purity mark when dealing with an unknown dealer.
You will also need to inquire from the gold seller about their buyback policy to sell the gold back to them. In the presence of such a policy, you will not be charged a second premium when selling back to them. Again, you can use this to determine the reputation and quality of the dealer.
The two types of coins that you may find in the market include numismatic and sovereign coins. A government mint always backs sovereign coins with a face value that may be lower than the value of the raw gold. Therefore, numismatic coins are more valuable to collectors of rare coins. However, you should only buy such coins if you are a collector because they are not easily liquidated or sold.
If you have made up your mind to invest in bullion sovereign coins, be sure to buy from a government mint authorized dealer for authentic coins. Such dealers will also have varied options for their buyers.
Advantages of Coins
Common Gold Coins Include:
It is important to look at all the available gold coins and their coin features before deciding on the one for your investment. You can buy the gold coins online or locally, but you need to be careful when selecting an online source so that you will not fall victim to fraud and fake gold.
Gold Derivative (futures and options)
This is the riskiest way of investing if you are not experienced and informed. However, if you are an experienced gold investor and worry about investment risk, you may consider using options and futures on a gold ETF. A future is a contract, whereas an investor agrees to buy or sell gold during a particular time at a specific price regardless of the current market conditions.
An option just from its sound is whereas an investor is given an option of buying or selling the gold when it reaches a particular price on or before a specific date. You will only be required to pay the premium for the option, which is the maximum risk of the contract and not for the individual gold units because there is no obligation to buy or sell the asset.
With this investment option, there is the advantage of avoiding extra costs like storage costs, especially when dealing with physical gold. This is because, as an investor, you don't have physical delivery of the gold until the contract is mitigated. This option also allows you to mitigate your investment loss at any given time because it is a reduced risk way to invest in the stock market, especially if you are experienced. If you realize the price of selling gold is moving up or down, you can take advantage of this investment option.
Depending on your investment strategy, you may choose between short or long-term contracts. If you are an investor who wants leverage, flexibility, and financial integrity than that found in trading in physical gold, you may also consider these contracts.
This is proof of gold ownership on paper. Initially, gold certificates in the United States were backed by gold and were worth the face value of the gold until the early 1930s, when the gold standard was abandoned. Currently, you need not get too excited about gold certificates because they only have collectible value, and therefore you cannot redeem your gold from the bank.
Buying gold certificates from a bank with physical gold does not mean you will own the gold even though the bank will owe you gold. This means you will only have an unallocated gold certificate that does not represent specific gold bullion but gold value.
This option is too risky because if the bank liquidates or goes under, you will automatically lose your investment; hence it is up to you to decide. Instead, you can buy a gold certificate for allocated gold where you own physical gold, and you are given a serial number for the gold bars held by the bank. The advantage of this is that higher premiums and generally storage charges will be charged. In this case, the gold is your, and upon liquidation, you can take possession of it by proving using the certificate of ownership.
With almost 49% of gold being used in making jewelry, you might also choose to invest in gold jewelry. However, buying gold jewelry like necklaces and rings will translate to overpaying for the actual gold value. This is especially where you buy from retail traders who will have automatically add a great markup on the jewelry price, like over 300% of the value of gold.
The best option is buying from private sellers and, more preferably, not in an auction sale. In an auction, the gold jewelry may also be higher than the underlying gold value. There is more luck with private sellers, junk markets, or garage sales than retail dealers. The value of fold jewelry will always depend on the purity and weight of the gold.
Jewelry pieces with 24karat and 99.99% metal purity will be very expensive. The disadvantage of this method of gold investment is that it consumes a lot of time and may be labor-intensive in terms of finding reputable dealers.
Gold ETFs and Mutual Funds
These are commodity funds first launched in Australia in 2003 and 2004, respectively. Those investing in such funds do not hold physical gold even though they represent assets backed by gold. These funds trade like a stock. Investors create more diversity in their investment portfolios by investing in small quantities of gold-related assets than in the case of gold bullions. This investment is smaller than gold bullions and gold coins hence suitable for investors with a small investment ability.
The risk involved in this form of investment is reduced as you will invest in different assets, and you can increase your holdings over time to increase your investment.
Mutual funds are another protective investment that shields an investor from economic shocks and inflation. In addition, these investment options give you a chance to diversify your investment portfolio.
Gold Mining, Refining, and Production Companies
Another effective way to profit from gold is investing in gold-related companies because of the rising gold prices in such companies. This form of investment is also beneficial to investors as it has a reduced risk compared to other gold investment options. In times of flat or declining gold prices, these companies will still show a profit.
For this reason, gold mining companies have proven to be a safer way of investing in gold than through direct ownership of physical gold because most of these companies have developed ways of hedging themselves from the fall of gold prices. However, selecting this investment method requires due diligence from the investors, which may be time-consuming and not feasible for some investors.
Companies you may Consider for your Investment
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It is not just about investing in gold but how and where you invest your gold. These two factors are very critical for the success of your gold investment. It would be best if you were well informed about the necessary considerations before investment. You also need to be careful be selecting an investment partner, whether it is a gold company, bank, or any dealer for that matter. You need to conduct due diligence before selecting your gold investment partner and in the case of dealers, ensure they are well known and reputable, preferably government mint authorized dealers.