As far back as 550BC, gold coins were minted and used as currency. Even before that, however, gold was acknowledged as valuable and as a sign of wealth. While all precious metals have their place, not many are compatible with gold.
The current state of affairs in which physical gold and other derivatives became acknowledged the way they are now, began to emerge in the 1800s.
Whether it’s a gold coin, a piece of gold jewelry, or any other piece of bullion, just about anyone you ask will acknowledge gold as both a precious metal and as valuable.
How does it hold up if you were to invest in gold, though? After all, this isn’t your traditional investment. When you think of the term “buy gold,” you’re probably thinking of all the physical items on the gold market.
The concepts of gold stocks and gold exchange-traded funds, for example, are foreign to many. However, there happen to be quite a few different ways to make gold a part of your investment strategy.
With all that said, there are two purposes of all you’re about to read. First, there’s the matter of helping you to see how gold could fit into an investment portfolio. More importantly, why invest in gold bullion? Should you even do it? Will you be losing money rapidly?
Stick around for all the details!
What Will I Learn?
- What Are the Upsides of Investing in Gold?
- Why Should You Not Buy Gold?
- Potential Gold Investment Opportunities for Gold
- External Influences
- What Is the Outlook if You Choose to Invest in Gold Bullion?
- The Bottom Line
What Are the Upsides of Investing in Gold?
It’s good to start on a more general scale. Is gold a good investment? If not, you’d at least want to know why you should not invest in gold.
Typically, you purchase gold coins, bars, etc. Ascertaining gold prices from these usually requires evaluation of its gold content. How rare it is or what condition it may be in doesn’t matter here.
So, if you’ve ever wondered why gold bars are a good investment, this makes a pretty strong case. There are not many tangible assets that don’t see their value affected negatively by their condition, but physical gold has that luxury.
On top of that, the gold market seems to always be booming. Regardless of what the gold price is, people are always ready to buy some. Therefore, liquidating your physical gold is not too much of a challenge.
Gold Prices Recover Well
Does gold increase in value? Yes, sometimes it does. However, just like shares on the stock market, gold prices can trend downward too, and sometimes they do so quite severely.
However, they always manage to stabilize when they fall and return to some level of normalcy. 2020 is a great example as gold saw its highest price in history.
One of the reasons for this is the way gold seems to move in the opposite direction of economic swings. If you had purchased gold mining stocks, gold ETFs, or gold futures during the 2008 recession, for example, your investment would’ve appreciated tremendously thanks to quantitative easing (QE) being adopted by central banks.
Precious Metals Help to Diversify Your Portfolio
Physical gold is a commodity and the underlying gold stocks and other investments are based on its properties. One of these is that its very nature leads to portfolio diversification, whether in a professional capacity or via retail investor accounts.
Imagine you have a pool of different investment types that make up your portfolio. The chances are that, as the dollar falls, these will likely lose value. Gold, however, will not.
That’s not to say that such investments can never lose their value. However, should you stand to lose, it would not be for the same reason. After all, the gold price at any point in time doesn’t have a negative effect.
Superb Hedging Asset
When inflation rises, the purchasing power of the dollar falls. Alongside rising inflation is a rising price of gold. A well-known investment strategy is to turn to gold whenever other investments cause stakeholders to be losing money rapidly.
The school of thought that sees this as a good investment style is very straightforward to follow. If physical gold is maintaining its value and even getting more valuable as the dollar goes down, why wouldn’t anyone aware of it take advantage?
Physical gold becomes even more appealing than gold stocks in this sense, as it can be held to help an investment portfolio to retain at least some of its value.
Remember also that, unlike standard FIAT currencies, there’s no printing more gold or eliminating some of it in response to supply and demand. Even the introduction of new gold jewelry to the market is not the same thing.
After all, it’s not coming from thin air. Instead, physical gold that has already been mined or discovered is simply being converted into a different form. So, you could say that the amount of the commodity out there is set in stone.
Why Should You Not Buy Gold?
What are the disadvantages of gold? They’re certainly not discussed at length like the advantages of the precious metal are, and there’s an understandable reason for that. The downsides are simply not as impactful.
One of the big ones is not knowing how to value gold. Therefore, physical gold and even gold stocks could be way off base. Consider not investing in gold without the help of a financial advisor.
Next, it’s often said that gold has no practical use. However, investing in gold in its physical form is not done for usability in the traditional sense. Even if its only purpose is inflation protection, that’s a very important one.
Finally, no one knows where the price of gold will go in the future. Does this mean you shouldn’t buy physical gold or gold stocks? It most certainly doesn’t mean that. Consider how many other investment types are out there that have an unclear future.
Investing in gold ETFs, for example, is akin to other similar investments. It’s all speculation, historical data, and watching market moves.
Potential Gold Investment Opportunities for Gold
Is gold really a good investment? Surely, you’ve at least partially gotten an answer to that. By now, you understand a bit of the history and even why investors gravitate to gold, especially under certain circumstances.
The intention of this section is simple. It’s meant to explore a couple of the investment opportunities individually, which should help to answer questions such as the following:
What are the advantages of owning gold bullion?
Is gold better than money?
Is gold bullion a financial instrument?
Why invest in gold bullion? This is a very good question. After all, many investors seek it. For clarification, bullion refers to the physical form of the precious metal. Different forms include gold coins, ingots, or bars.
Protection and control are the two major reasons it makes for a great purchase. On the protection side of things, this is a matter of wealth. By opting for gold bullion, you get to capitalize on the value of gold, while assuring yourself that you will always be able to find a buyer.
As indicated before, even when the price of gold is terrible, it’s always being bought. Historically, it tends to regain lost value, which likely generates a sense of comfort and confidence in purchasing it.
On the control side of the spectrum, being able to physically store and access your asset gives a high level of control since there is no third party. Of course, depending on your location, you may be required to use a depository. Smaller items such as gold jewelry may be exempt but once you get to bars, things are a bit different.
Physical gold can be a very good store of value, but it does come with some considerations that you’d probably rather not deal with such as storage.
Beyond that, you must understand that gold is a very coveted resource in its jewelry form and otherwise. Therefore, theft is as big a concern as it is with FIAT currencies. In fact, one could argue that the risk is even greater with physical gold than it is with standard money.
Therefore, beyond ensuring that it’s stored in a safe place, people often also ensure that they get insurance just in case any undesirable events should occur.
Considering all this, it’s probably not too hard for you to imagine why many investors choose to go the route of ETFs as their preferred gold investment method.
You still get the exposure you need to gold, you get to reap many of the value-based benefits, and you don’t have to worry about the considerations that come with the physical form.
Technically speaking, as liquid as physical gold is, ETFs offer even greater liquidity. Many of them track the movement of the underlying commodity.
Here are more articles we’ve written about ETF’s:
This is an interesting investment opportunity in the financial markets that many people are unaware of. A gold derivative is just about any product that depends on the price of gold for the setting of its own prices.
Futures, leveraged trading accounts, CFDs, etc. are some of the options you have if you decide to go this route. The nature of many of these means that you have a greater chance of having a diverse portfolio.
After all, many of these trading account options are conducive to different precious metals and a wealth of other underlying assets.
Though gold is very good at remaining viable and valuable, there is always the possibility that external influences will lead to market moves. For example, India and China have a lot of influence over the rate of precious metal growth.
China, in particular, is arguably the fastest-growing market for gold. A report by the World Gold Council pointed out the way buyers in China view price drops as huge buying opportunities.
What Is the Outlook if You Choose to Invest in Gold Bullion?
As you saw earlier, going the bullion route can yield a series of advantages, including control, investment protection, etc. Does this mean that the future of the commodity is bright and you should go ahead with an investment?
The answer to this question can change with time and market conditions. For example, at the time of writing, the price of gold is below its higher levels.
However, experts such as those at the ABN Amro Dutch bank believe that it could be a good investment as the US dollar is expected to continue on the weakening path it has been.
Such a move in the strength of the dollar translates to a greater value of gold.
Of course, all this is simply the analytic side of things, and it remains to be seen.
The Bottom Line
Currently, gold is not at its highest price. Nevertheless, as you’ve come to understand by now, many investment products surrounding gold tend not to be negatively affected by these kinds of situations.
Bullion looks like a potentially wise investment because it has an inverse relationship to the dollar that happens to currently be on a downward spiral.
There’s a reason that the Chinese take advantage of price drops as the time to buy.
Of course, investment is a risky business. Though gold’s history has painted a positive story until now, you never know what will happen until it happens. If you want to invest in gold for the long term, look into gold IRAs.
Therefore, though it’s a pretty good prospect, think about the amount you can afford to invest. Additionally, reduce your risk by not having gold be the bulk or the full extent of your portfolio.
If your trying to stem losses elsewhere, then this is an understandable move. However, you typically want to keep things diverse.
Is Buying Gold a Good Idea Right Now?
Depending on who you ask, you can get wildly different answers to this question. Gold tends to be a more consistent investment, and assuming the dollar remains on its current trajectory, you could see some long-term benefits in choosing to buy it.
Just remember to evaluate your risk profile before you decide to go through with the investment journey.
How Much Should I Invest in Gold Vs Other Precious Metals?
Ideally, your diversity should be across the board just as it may be across various precious metals. You don’t want to entirely rely on precious metals.
Perhaps you could invest in gold, platinum, silver, real estate, stocks, etc. The idea is to try to keep yourself afloat if one or more similar investment types begin to generate losses.