Gold has always been a valuable commodity. Its value is rooted in its scarcity, beauty, and intrinsic worth to humans worldwide. When you invest in gold, you invest in something that will last for generations. Gold prices have fluctuated over time, but there are many reasons why gold is so precious! In this blog post, we’ll explore the history of gold and what it means to be an investor today.
What Will I Learn?
- What is Gold?
- Gold Prices: A Brief History
- Gold Prices Over Time
- Why Look at Historical Gold Prices?
- What has Driven Changes in the Gold Price?
- Why is Gold a Good Investment?
- Gold Is Rare
- Gold stays valuable over time
- Gold has limited supply
- Gold can be used to make jewelry
- Gold is a Safe haven during economic uncertainty
- Gold is easy to store
- Provides competitive returns
- Has been proven to work overtime
- Can provide passive income
- No Capital Gains Taxes
- It’s a great way to diversify your portfolio.
- It’s an intelligent way to build long-term wealth.
- It’s a hedge against inflation.
- It’s a good retirement plan.
- It’s a great gift idea.
- How Do You Invest in Gold?
What is Gold?
Gold is a soft, malleable metal with a yellow-white color. It is one of the most common metals used by people worldwide. The word “gold” comes from the Greek word “Argentum,” which means silver. Gold was first discovered in South Africa in 1652. Since then, gold has been mined all over the world.
Gold Prices: A Brief History
In the early days of human civilization, people used gold as currency. They would trade their goods with one another or use them as payment for services and still this period the value of gold was high compared to other goods. This was before any form of government existed. People traded goods because they were scarce and valuable. For example, if someone needed food, they could trade some of their goods for other things they wanted. If someone had more money than they needed, they could buy food using their surplus funds.
As civilizations grew larger, governments began to emerge. These governments controlled how much money citizens could spend on goods and services. As a result, people hoard their money instead of spending it. This led to inflation. Governments tried to solve this problem by printing more money. However, this only made the situation worse. Eventually, people stopped trusting paper money and turned to gold coins.
Today, gold remains one of the best forms of investment. There are several reasons why gold is such a great asset class:
- Gold is rare. Only about 1% of the Earth’s crust is composed of gold. That makes it extremely hard to find.
- Gold is beautiful. It has a bright, shiny appearance.
- Gold is useful.
You can use it to make jewelry, build houses, make electronics, etc. Because of these qualities, gold is considered a haven during times of economic uncertainty.
Gold Prices Over Time
There are two main ways to measure the value of gold. One way is through spot prices. The market determines spot prices at a specific moment in time. Another way is through futures contracts.Futures contracts allow investors to speculate on future prices. Futures contracts are also known as forwarding contracts. Forward contracts are agreements between two parties where one party agrees to purchase a certain amount of an asset at a set price in the future.
Spot prices tend to move up and down based on supply and demand. Gold is a highly sought-after commodity due to its rarity. Thus, when demand increases, the price tends to rise. Conversely, when supply increases, the price tends to fall.
Futures contracts are priced according to the current prevailing price of the underlying asset. The contract will expire at a predetermined date and time. During that period, the buyer must either take delivery of the asset or pay the seller the agreed-upon price. After the expiration date, the contract becomes void.
Futures contracts have many advantages:
- You don’t need to worry about fluctuations in the spot price. When you enter into a futures contract, the price is locked in.
- Futures contracts give you flexibility. You can decide whether you want to hold onto your position until the end of the contract or sell it earlier.
- Futures contracts allow you to hedge against risk.
You can protect yourself from unexpected events by entering into a futures contract.
Why Look at Historical Gold Prices?
Historical gold prices provide insight into the current market. By looking back at past trends, investors can learn whether or not the current trend is sustainable. Investors should consider six factors when analyzing historical data:
How long did the price change occur? Is it a short-term movement or a longer-term trend?
What was happening in the economy at the time? Was the U.S. dollar strong or weak relative to other currencies? Were interest rates high or low?
Relative strength index (RSI)
How volatile was the market? Did the price move up or down quickly or slowly?
How much volume was being traded?
When evaluating the market, investors should try to identify patterns. Patterns help predict future price movements. For example, if you notice that the price has risen consistently for three months, something is probably going on behind the scenes.
Where is the gold coming from? Are the miners located in an economically stable country?
Type of mining
Are the mines producing large amounts or small amounts of gold? Large-scale mining produces higher quality gold. Small-scale mining has lower-quality gold.
What has Driven Changes in the Gold Price?
What costs are associated with producing the gold? How much money is it costing the miner to produce each ounce of gold?
When looking at gold prices over time, you should consider both spot and futures prices to get a complete picture. As stated before, the two measures tell investors different things. Spot prices give investors a sense of the current demand for gold. On the other hand, futures contracts allow investors to speculate on future price movements.
Spot prices are usually quoted as the price per ounce. However, you can also look at spot prices in grams and kilograms.
Gold prices tend to be more volatile during certain year periods, such as national holidays and elections. For example, the price of gold tends to rise during the Chinese New Year. Other factors that have a significant impact on gold prices include:
Gold supply and demand
Gold production increased dramatically after World War II. The United States became the world leader in gold mining. Demand also rose due to the rise of industrialization. Today, China is the largest consumer of gold.
Interest rate policies
Governments around the globe have adopted various interest rate policies. When the Federal Reserve raised interest rates in 2008, gold prices fell. In contrast, gold prices soared when the Fed lowered interest rates in 2015.
Throughout history, the value of the U.S. Dollar has fluctuated based on the economy’s overall health. During periods of economic growth, the dollar becomes stronger. Conversely, during recessions, the dollar becomes weaker.
In recent years, governments have devalued their currency by printing money. This causes inflation, which means the purchasing power of the currency decreases. As a result, the cost of goods increases. Gold tends to become more valuable as a result.
During political turmoil, people tend to be afraid of what might happen next. They will often turn to assets like gold to protect themselves against possible losses.
Some countries impose import duties on foreign products. These taxes encourage domestic companies to produce certain goods instead of importing them from abroad. If a government imposes a tax on imported gold, this could cause the price of gold to increase.
Indian jewelry market
India’s jewelry industry has grown rapidly since 2000. India now consumes about 20% of the global supply of gold each year.
Central bank reserves
Central banks can influence the price of gold by holding or selling gold. Central banks often hold gold as part of their reserves. Selling gold would mean they lose monetary control but buying it helps maintain stability.
Fluctuation in stock markets
Stock markets can affect the price of gold because they impact investor sentiment. Investors who want to invest in stocks may sell some of their gold to finance their investments.
Conflict in the Middle East, for example, may spark fear in the market and raise gold prices.
The U.S. presidential elections
If a candidate they don’t like wins the election, investors will buy up gold.
Why is Gold a Good Investment?
There are several reasons why investors should consider buying gold. Here are just a few:
Gold Is Rare
One reason why gold is so valuable is because it is very rare and this is one of the answer of why is gold a good investment. According to the World Gold Council, less than 1% of the Earth’s crust is composed of gold (1). This makes it difficult to mine. Most of the gold that exists is concentrated in certain areas. For instance, Australia, Canada, and Russia contain large amounts of gold.
Gold stays valuable over time
Another reason why gold is such a good long-term investment is because it stays valuable over time. Unlike fiat currencies like the U.S. dollar, the price of gold does not change based on supply and demand. Instead, the price of gold is determined by the market. Investors know that gold will remain valuable even when the economy is doing poorly. In addition, gold prices do not fluctuate wildly. Thus, you can plan your investments accordingly.
Gold has limited supply
Another reason gold is an excellent investment is that there is a limited supply. When you invest in gold, you own part of the entire supply. The total amount of gold available is approximately 140 billion ounces (2). This means that you have a small piece of the pie.
Gold can be used to make jewelry
A final reason gold is a good investment is that it can be used to create jewelry. Many people prefer to wear jewelry that is made from precious metals. Gold is one of the most popular choices among consumers.
Gold is a Safe haven during economic uncertainty
When economies around the world are unstable, gold becomes a haven. The reason behind this is simple. When people lose faith in their national currency, they turn to gold. Gold is seen as a store of value. If you want to protect yourself against inflation or other types of financial instability, then investing in gold may be a wise choice for you.
Gold is easy to store
If you decide to invest in gold, you don’t need to worry about storing it. Once you have purchased your gold, you can put it in a safety deposit box at any local bank. Alternatively, you can keep it in a secure location like a safe-deposit box at a private storage facility.
Provides competitive returns
Investing in gold provides higher rates of return than many other traditional investments. As mentioned above, the total amount of global gold reserves is approximately 140 billion ounces. However, only about 5 million ounces of gold are mined each year. This means that the remaining 135 billion ounces are left untouched.
Has been proven to work overtime
Over the past two thousand years, gold has consistently provided higher rates of return than other assets. It has also survived economic crises and wars. You can rest assured knowing that gold is here to stay.
Can provide passive income
You don’t need to do much to make money with gold. All you need to do is buy gold, hold onto it, and let it generate profits for you. You won’t need to work hard, and you’ll get paid whether the economy is doing well or not.
No Capital Gains Taxes
One of the best things about owning gold is that you don’t pay capital gains taxes. If you sell your gold, you’ll receive all of the profits without paying taxes. In addition, if you use your gold to purchase another asset, you won’t owe capital gains taxes.
It’s a great way to diversify your portfolio.
Many investors choose to focus on just one type of investment. For example, some people might specialize in stocks while others focus on bonds. By owning gold, you’re diversifying your portfolio. This makes your overall wealth stronger.
It’s an intelligent way to build long-term wealth.
Most people don’t realize how powerful gold is until they purchase it. While you could potentially earn more by putting your money into a high-interest savings account, you will never experience growth like you would with gold. Over time, you’ll build an impressive fortune.
It’s a hedge against inflation.
Inflation is the increase in the prices of goods over time. Historically, inflation has followed booms and recessions. When there is a lot of economic stress, such as during a war or a recession, prices often become unstable. Owning gold protects you from these price increases.
It’s a good retirement plan.
Retirement isn’t too far away, which means that you should begin saving now. Since gold doesn’t require much maintenance, you don’t have to spend your money on upkeep. Instead, you can save money later in life and enjoy yourself today. Here’s a page with recommended investment gold companies.
It’s a great gift idea.
If you’re looking for a unique present for someone special, consider buying them gold instead of jewelry. Not only does this give them something useful, but it ensures that they’ll always be able to wear their favorite piece.
How Do You Invest in Gold?
Gold is the oldest form of currency known to man. Although its value changes every day, current estimates place the current value of 1 troy ounce of gold at around $1,600. With this being said, there are several ways to invest in gold.
Buy physical gold
This is probably the most popular method of investing in gold. When choosing a company to go with, look for ones that deliver 24k-karat gold bars. The problem with this option is that it costs around $2,000 per ounce, which is quite expensive.
Invest in gold ETFs (Exchange Traded Funds)
An exchange-traded fund gives you exposure to gold through stock ownership. It’s important to know that ETFs aren’t subject to government regulation, so there’s no guarantee of their value. However, many experts believe that gold ETFs are safe havens. They offer higher liquidity and lower volatility than other options. Plus, since they trade on exchanges, they provide transparency and ease of access.
Invest in gold coins
Another popular choice is investing in gold coins. These come in various sizes, including half dollars, quarters, dimes, and even sovereigns. There are also bullion coins, which include rounds and bars. You can either buy these individually or through companies specializing in bulk purchases.
There are a few different types of gold mining companies. One of the easiest to understand is resource exploration. Companies involved in this work identify new sources of precious metals. Other companies extract existing deposits by drilling, blasting, or dredging ore. Finally, refiners separate the valuable minerals from less desirable materials. Shares of these companies are sold throughout the world.
Invest in gold jewelry
Many people own gold jewelry because they want to feel like royalty. Investing in gold jewelry is similar to buying gold coins or bars. Buying gold jewelry requires research, though. Make sure that you purchase high-quality pieces that will last a long time.
Invest in gold bullion
Buying gold bullions is very similar to purchasing stocks. You choose an amount of bullion that fits within your budget, then decide whether you want to pay all at once or overtime. If you pay overtime, make sure to lock in a low-interest rate. This way, you don’t have to worry about paying more money later.
Invest in gold mining equipment
You may not think of investing in gold mining equipment as an investment, but it makes sense. Mining companies need large amounts of capital to build their operations. A business loan might be used to finance the construction of a mine. Once the operation has been built, the equipment becomes part of the fixed assets. Over time, the value of the equipment increases due to inflation. As a result, investors earn profits without investing directly in the actual process.
Invest in gold stocks
Gold stocks are another good way to invest in gold. They are investments that pool together cash from thousands of individual investors like mutual funds. Unlike mutual funds, though, gold stocks allow direct participation in the company’s management. For instance, executives of a gold mining company will often sell a certain number of their shares each year to raise money. Thus, executives receive dividends from the company every month. Since executive salaries are usually very competitive, executives are typically happy to obtain extra dividends.
In conclusion, the historical value of gold is undeniable. Even though gold prices may rise and fall, they will never lose their value. Gold is still a great way to diversify your portfolio and hedge against future economic instability. The historical value of gold is one of the most important factors when making an investment decision. Many other things should be considered as well, such as how much risk you’re willing to take, what type of return you require, and so forth. However, if you understand the historical value of gold and use it as a factor when making your decisions, you’ll succeed in the financial markets.
- How do I buy physical gold?
There are many ways to buy physical gold. The safest option is to go through a reputable dealer. Alternatively, you can search for private sellers on eBay or Craigslist. Be careful with both options, however. Private sellers may offer lower prices, but they also lack the protection provided by dealers.
- What’s the difference between bullion and coin?
Bullion refers to raw material, while coins refer to finished products. Coins are minted by governments, whereas bullion is mined. Both are valuable forms of storing wealth.
- Can I store my gold in a bank?
Yes, although banks charge storage fees. It’s best to keep your gold stored somewhere safe where it won’t get stolen.
- Do I need insurance for my gold?
Yes, especially if you plan on keeping your gold for an extended period. Insurance protects you against theft and loss.
- Is there any downside to buying gold?
Yes, because gold prices fluctuate. If you decide to sell your gold at a later date, you could end up losing money.
- Should I invest in gold now?
It depends on your situation. If you have a short-term goal, then yes, you should consider buying gold today. Otherwise, wait until you know precisely what you want to accomplish before purchasing.