Gold has represented both wealth and value for thousands of years. In modern times, it has been seen as a safe-haven investment. Investors take solace in its durability, shine, and scarcity. It is also easily bought and sold. As the world's premier precious metal, gold is an attractive investment.
Gold is a yellow metal with a high atomic weight that remains bright regardless of its temperament. It has been used to make jewelry, coins, and sculptures. Gold is very malleable and ductile that it can be beaten into a leaf or drawn into wire. It is also used in electronic devices, dentistry, and medicine.
The metal is mostly found in its natural state but is also created in nuclear reactions. It is found in the earth's crust and mantle. Gold can be found in alluvial deposits and old volcanoes. It is also found in many rock core samples.
Recently, gold has been mostly used as a hedge against inflation. Governments control many of the gold reserves, which they sell off at an affordable price to investors through bullion dealers, who then sell it in regular markets.
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Tips to Invest in Gold
Investing in gold is an easy and safe way to grow your wealth. The metal can be bought several ways, but you should avoid scams. Some popular investment methods include buying physical gold and owning shares in a gold mining company.
It is advisable to buy gold from reputable companies or dealers such as Goldco, Augusta Precious Metals, and American Hartford Gold that can buy and sell to the regular market. Buying gold is an easy and safe way of growing wealth.
However, you must know how to handle your gold investments to reap their benefits and maximize your returns. The three physical gold investments are bullion, gold coins, and jewelry.
A bullion is a mass of gold in the form of bars or ingots. It is sold in fine gold, uncut, and generally weighing between one to ten ounces. But they can also be found in smaller and larger sizes, ranging from a few grams to 400 ounces. Bullion can be bought and sold by the ounce. Gold bullion retails at $1,900 per ounce and is quite expensive for investors.
When buying bullion, you should visit a reputable retailer who can tell you about the quality of your gold and its purity. If you're purchasing gold bullion, it is important to make sure you are buying real gold and one sourced from the appropriate channels. One way of assuring quality is by checking the Hallmark mark on your bullion.
2. Gold Coins
Another popular way of investing in gold is buying coins made from real gold. Coins are certainly more affordable than bullion. Gold coins can be found in a wide range of denominations. They are also available in a variety of gold content and purity. When buying coins, you should ensure they are of good quality, not counterfeit.
3. Gold Jewelry
Jewelry made from gold is another popular way of investing in precious metals. Gold jewelry bought for investment purposes can be sold when the price of gold is high. They are also safe to store and sell if certified by your jeweler or dealer. Gold's purity is measured in karats, 24 karats being the purest. Once you have a karat number, you can use it to help determine the karat of your gold jewelry.
Owning Gold Shares
An alternative to buying physical gold is to buy gold mining companies' stocks and equity. When investing in these stocks, you buy a share of the company. The easiest way is to invest through a brokerage firm. Once you have bought your shares, you will receive dividends that reflect the gold ore extracted and sold by the company.
Gold ETFs and Gold Mutual Funds
Gold Exchange Traded Funds (ETFs) and Gold mutual funds are also good ways to make a solid investment in gold. These funds allow you to trade on the market price of gold without having to buy the physical metal.
The shares in ETFs and mutual funds trade as if they were company shares, which you can do with any online brokerage. Gold ETFs and Gold Mutual Funds have more liquidity and are, therefore, easier to buy and sell than gold bullion.
Factors that Affect the Price of Gold
Gold's price depends on several factors that affect the metal's value. The price is affected on a day-to-day basis by the supply and demand of the metal. The demand for gold is driven by the economy and currency fluctuations.
Also, the price of gold is affected by global geopolitical factors such as war, elections, etc. Here are the factors that affect the price of gold.
1. Supply and Demand
The demand and supply of gold are the crucial elements that affect its price. Typically, rising demand for physical gold pushes up its price. Economic factors mainly drive this. As economic growth slows down, investors start investing in gold as a hedge against inflation.
When investors become nervous and uncertain about the economy, they turn to safe-haven investments such as gold, which increases its demand and drives up its price. The supply of gold is limited due to its scarcity. Gold is also expensive to extract, transport, and refine. As a result, its price rises.
2. Currency Fluctuations
Aside from the price of gold itself, the exchange rate of fiat currency to gold also affects its price. The rising demand for gold can cause the demand for alternative currencies, such as the U.S. dollar or euro, to rise, consequently lowering the value of those currencies against gold.
This directly affects the real demand for physical gold and is generally reflected in fluctuations in some fiat currencies against it.
3. Economic Growth and Inflation
In general, the economic growth of a country results in rising demand for gold. This is because gold is a good store of value and is seen as one of the safest investments. As a result, as the economy grows, its investors tend to shift their money from other investments to physical gold, which increases its price against fiat currency.
4. Geopolitical Factors
Geopolitical tension can boost the price of gold in various ways. Investors are likely to buy gold as a safe-haven investment during times of instability and uncertainty in global markets, such as a threat of war, sovereign debt crisis, and elections. These events directly affect the demand for physical gold and are therefore reflected in its price fluctuations.
5. Monetary Policy
The economic growth of a country is one factor that affects the demand for gold. The country's monetary policies also play a significant role in determining its price. The monetary policy of a fiat currency is defined by its central bank. Changes in this policy can generally boost or lower the value of gold and affect how it is used as an investment.
The central banks of most countries generally follow a policy of quantitative easing. This means they increase their money supply to stimulate their economy. When this happens, the value of fiat currency usually drops against other currencies, including gold. Therefore, a rise in the price of gold occurs, which depreciates fiat currency and helps support the value of gold.
Gold Mine Lifecycle
The lifecycle of a gold mine is the process through which a gold mine is mined, refined, and processed. The lifecycle of mining gold determines the amount of gold produced and processed and whether it produces any waste products.
Often when we talk about gold, what comes to most people's minds is people digging in the ground, which is the process through which gold is extracted. However, Gold mining involves a variety of processes, from extraction to refining to production.
Gold mining takes place when a deposit is discovered. This finding starts the whole lifecycle of a mine. The discovery process begins with mapping and exploration. These preliminary stages determine whether the area has an undiscovered deposit. This process usually takes one to five years.
Exploration for gold is done by geologists and mining engineers who analyze the geology of the area. They identify areas where gold has been extracted in the past, but there is still undiscovered gold in a deposit that has not yet been extracted. Once the deposit is located, the mining company will begin to develop plans for the extraction and operation of the mine.
Developing the Mine
The next stage in the lifecycle of a mine is developing the mine. This process includes designing, constructing, and installing equipment to extract gold from the ore. The development of a gold mine can take years to design. It depends on the size of the deposit and whether or not it is easy to extract gold. Gold deposits with large quantities are usually easy to extract and develop.
Once the mine is developed, it is time for the extraction of gold. This process starts with the production of ore, which then goes through a series of processes, including crushing, grinding, and sizing. The ore is then processed further, and a mixture of gold, quartz, and rock is produced. The final step is where the gold is extracted with the help of an acid solution. This process will continue until all the gold in the ore has been extracted.
Closure of the Goldmine
The last stage of the lifecycle of a mine is the closure. This is where the equipment and facilities used throughout the mining process are dismantled, and the land used for mining is rehabilitated. Rehabilitation usually involves removing all traces of processing, installation, and equipment left behind to restore the area to its previous state. This stage ensures that there is no longer any risk of accidents in the area.
How to Test Gold Authenticity
Gold bars and other products must carry a hallmark that identifies them as genuine. The hallmark is a series of capital letters and numbers stamped, punched, or engraved on the item. It instantly identifies the piece's purity level and its maker or assayer.
2. Acid Test
Gold is resistant to nitric acid, so if an item made of it is immersed in nitric acid, the acid will not cause a chemical reaction. If it does react, the piece is not pure gold or has been coated with another metal.
3. Magnet Test
Gold is non-magnetic and hence will not attract a magnet.
Advantages of Investing in Gold
Investing in gold has benefits that outweigh the costs. Here are the benefits of investing in gold.
Gold is a good portfolio diversifier. Investors can add physical gold and gold mining shares to their portfolios as an alternative investment when they are worried about the market. While this doesn't guarantee that you will avoid losses, it reduces your risk by adding another highly liquid asset class to your overall portfolio.
2. Wealth Preservation
Gold is a transparent and low-cost way to protect your assets. With gold, you can be assured that your wealth is being kept safe by the promise of its value and confidence in its scarcity. It is a way to secure your wealth against inflation and currency devaluation, which makes it an effective investment in the long term.
3. Stable Future Returns
Since it is a commodity that has been used for years as a store of wealth, gold can be considered a store of value. It is widely acknowledged as a reliable value store, making it a stable investment. This means that gold's current price will likely maintain its value over time, and therefore investors can expect consistent returns from investing in gold.
4. Gold as an Alternative Currency
Gold is not only valuable as an investment but also as a currency at times of economic uncertainty and crises. It is a reliable store of value used as an alternative to fiat currencies in times of crisis, such as a sovereign debt crisis or financial crisis. Gold has mostly been used as a store of wealth, but it has also been seen used by governments as an alternative currency, such as the British Gold Sovereign.
5. It Protects Against Inflation
Gold is a natural hedge against inflation. Since it is rare and limited in supply, as the demand for gold increases, so does its price. As its price increases, the value of fiat currency decreases against gold. This makes it an effective protection against inflation.
Investing in gold can be a lucrative investment. As with all investments, knowing the risks associated with gold is important. Investors need to be aware of factors that affect the price of gold, such as supply and demand, currency fluctuations, and geopolitical factors. Investing in physical gold is an excellent way to protect one's wealth against inflation and an attractive way to diversify one's portfolio.
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