Investing In Gold Pros and Cons

Investing In Gold Pros and Cons

Investing in gold isn't just the shelter of contrarian investors and the mega-wealthy. It has recently become more popular with people of all incomes, especially those living pay check to paycheck with a fear of inflation, looking for a safe place to park their money. Gold buyers may have already decided to invest in gold; they need help figuring out whether or not the investment is worth it.

In a study by the Federal Reserve Bank of St. Louis, just over one-third of Americans surveyed with less than $50,000 in household income believe that gold is a good investment that will retain its value over the years. Additionally, only 19% of people with household incomes between $50,000 and $125,000 thought their gold investments were worth investing in. Only 26% of individuals between $125,000 and $250,000 agreed that their gold investments earned them money.

A 2006 survey conducted by Gold Eagle shows that half of the gold investors made less than $50,000. In the same survey, 60% of those surveyed reported they make less than $100,000 a year. These surveys show that most people investing in gold only want to invest a portion of their income and are not necessarily trying to turn an investment into a business venture or put all their eggs in one basket.

With that in mind, there are pros and cons worth considering when investing in gold.

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Table of Contents
Investing In Gold Pros and Cons
How Can You Invest in Gold?
Frequently Asked Questions 
Final Verdict

Investing In Gold Pros and Cons

Why would someone invest in gold? There are several reasons, some of which include the following:

Pros

  • It can protect against inflation risks: Gold is a hedge against inflation. It is thought that while gold doesn't prevent inflation, it helps mitigate the damage that inflation can do to your money.
  • It's intangible security: Gold is not like stocks and bonds, so a government or other thieves cannot take it.
  • There are no taxes to pay on gold: You don't pay any federal income taxes on gold, nor do you have to pay capital gains taxes when you sell it for a profit. This is very important in the current economic climate because it allows you to save money from taxes while still earning a profit.
  • It can be sold at a premium: Gold can often be sold at a higher value than the price it was purchased for because people believe that gold is going up. That means, on paper, you can make money by buying it when gold is low and then selling it when gold is high. If you're smart and patient, you'll break even on your investment and have pocketed some profit over time.
  • It is a good way to save money for the future: Gold is a good investment because it's a liquid asset – a metal that can be easily converted into cash. This gives you flexibility in how you use the money since you can purchase things with it or put it in your retirement account without ever having to sell it.
  • It doesn't fluctuate wildly: Gold doesn't fluctuate nearly as much as stocks and bonds. Another benefit of gold is its price doesn't spike up and down as stocks and bonds tend to do, making this an easier investment for many people.
  • It is easy to buy and sell in the market: Gold can be purchased in its natural form, or you can buy it in the form of gold bullion – bars of pure gold made from the metal itself.
  • It does not require much maintenance: Unlike other investments that might require you to sell them when the market is high or pay to store them, gold does not need to be sold or stored, and all you have to do is buy it and keep it somewhere safe.
  • Price stability is an added advantage: Prices of gold do not fluctuate as much as the prices of stocks and bonds. This means that it is an easier investment to hold on to over time because you won't have to worry about losing money when the market goes up and down.

Although there are several reasons why someone would invest in gold, only some agree with this investment. When looking at investing in gold, you should also consider the following.

Cons

  • Buying gold requires more storage space: Gold bars require a lot of space if stored in a vault or bank safe deposit box. The weight of gold bars can pose a problem. For example, a half-ounce gold bar weighs between 0.1 and 1.45 kilograms (0.44 and 3.2 pounds).
  • There is the possibility of theft: If you are storing your gold at home, it is susceptible to being stolen by burglars. You have to weigh the pros and cons of keeping your gold at home vs. finding a bank with vaults and safe deposit boxes where they will store it for you, which will cost you money in storage fees.
  • Gold can be difficult to sell: Selling gold bars can be difficult because they need to be weighed and inspected by dealers, who then give you cash based on the price of gold at that time. The process may take time and can be expensive, especially if you do not have a local dealer or brokerage that would accept your gold.
  • The price of gold can fluctuate: Gold's price tends to fluctuate depending on economic conditions and other factors that may affect its value. For example, if inflation rates are rising and you think the gas price will go up, it might make sense to buy more gas rather than gold at that time.
  • Potential long-term performance lag: While the price of gold has remained relatively stable over the long term, other investments may have provided a better rate of return.

How Can You Invest in Gold?

Investing In Gold Pros and Cons

It is much easier to buy gold in coin form because it's easy to pick up the physical metal and weigh it.

If you want to invest in gold but don't want to worry about having a big chunk of the metal, gold can also be purchased in bullion – which is just the purely physical form of the metal. In some cases, you might also be able to buy gold in the form of bars.

Buying gold bullion is generally easier because there are companies that will sell it at a lower price than what these bars will cost you. You can also ask your bank if they buy or sell gold and if they have any partnerships with certain dealers or institutions who will buy your gold for them at a lower cost.

Another way to invest in gold is in the form of gold stocks, also known as "paper gold," which involves buying stock in companies that are involved with the precious metal, such as mining or trading.

If you buy a stock, gold shares, or any other kind of stock linked to gold, you'll have some obligations to do with the metal. This includes paying out dividends and keeping up with the metal's price by selling off shares when necessary.

Gold also comes in the form of futures, where you can buy exposure to gold that doesn't involve owning any metal. You may also purchase futures contracts through ETFs that invest in the metal, making your investment even easier because there is no need to worry about storing gold or anything else. However, these approaches involve some risks, such as increases in the price of metals and changes in tax laws, so they might only sometimes be good options for some.

The easiest way to invest in gold is through a mutual fund that deals with precious metals. This way, you can buy shares in the fund and not worry about anything else. However, there will be fees associated with these funds, and it is unlikely that you'll be able to sell back your shares for exactly what they are worth.

There is also the possibility of losing money if the value of those shares goes down, which happens to all investments, but can be especially true for volatile markets. Gold can also be bought on margin: This allows you to buy gold when you don't have enough cash but want exposure to the metal and its price movements.

Investing In Gold Pros and Cons

Investing in physical bars or coins is best if you can maximize gold profits. This way, you will avoid some of the fees and complications involved with owning your gold. Some of these companies will also be able to offer you a certain amount of security where they will store your gold for free.

Also, consider how you plan to sell or trade this precious metal and what kind of tax implications there might be if you trade on margin. Consider how much money you'll need in the future and other investments already in place before making any final decisions about how much gold to buy and which company to use for storage or selling purposes.

Another way to invest in gold is to buy mining shares. Because companies need to invest a lot of money to mine the metal, they will usually pay dividends. They will also usually share a lot of the returns they make with the shareholders by buying more shares or paying special dividends.

Some companies pay dividends directly, while others will allow you to sell your shares and use that money to reinvest in other areas, such as investing in other businesses or stocks.

Gold is considered an alternative investment, and it may be wise to take advantage of this option if you are okay with taking some risk. This is a good way to diversify your investment portfolio because many companies will have some exposure to the metal.

Some investors choose to add gold as a part of their portfolio but have yet to make it one of the major pieces. This allows you to invest in a stable commodity that has been shown to work well in recessions, but it doesn't mean that you are only investing in gold.

Sometimes, focusing on gold is a good idea, especially when stocks and other investments have become too volatile. This can reduce your portfolio risk if things get out of control, but it also means that you'll be missing out on potential gains from other investments.

However, if you want to make gold a major component of your portfolio, then it is wise to take some time to learn more about the industry and how you will be making money. This can help you decide how best to invest in gold and create a plan that can work for your needs.

Some investors will purchase physical bars or coins through their bank or other institutions that offer storage services. These forms of gold come with a certificate that specifies their weight, purity, and value. The cost of the metal will also be listed on the certificate, along with the cost of storing it and any taxes you might owe.

Frequently Asked Questions 

What is the difference between an allocated and unallocated gold bar?

Allocated bars are registered by name and held for a specific person. Unallocated bars are listed as a part of their owner's account and do not have any connection to the specific physical gold bar.

Is gold backed by paper or promises?

No, gold is not backed by any company or country, and it is a pure commodity, and the value has no relationship to the paper promises we write on pieces of paper.

What is the price of gold?

Many factors affect the price of gold, but it is all based on supply and demand. For example, when gold is abundant in circulation, and there is high demand for it, a higher price will typically result due to less supply and more people wanting to buy it. If there is a lack of supply or low demand for gold, prices can drop below their initial value.

What is the difference between buying gold bars and coins?

Buying gold bars is a good way to get your hands on as much raw gold as possible at once, but it also means that you don't have any "collectible" value. Coins are usually more expensive due to their collectible value, but they are also harder to sell and buy, making them difficult to store.

Final Verdict

Gold is a popular but volatile investment. If you want to invest in gold, you will have many opportunities to buy it from various places. It is a safe investment since it can be stored in bank accounts, and no taxes or major reports need to be made on the purchases.

Gold also offers other benefits, such as insurance protection and greater wealth transfer than other investments.

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