It Is Nice To Look At Your Gold Treasure
While gold can be used in many production processes and is also considered a safe haven during times of financial crises, investing in gold can also make sense since gold bars and coins can just be nice to look at.
Moreover, you can also buy gold as a gift for your loved ones and your family and friends will have something to remember when you finally pass away and they have a look at the gold coin you gave them many years after you passed away.
Thus, gold can also have some intrinsic value and can be a nice present.
Gold Is Used In Many Industrial Processes
Another advantage of investing in gold is that gold does not only look nice, but it is also used in many industrial processes.
In fact, without gold, we would not be able to produce computers or other electronic devices on large scale and gold as a resource is therefore pretty important for the global economy.
Thus, apart from just being a storage of value during crisis times, gold also has many practical advantages and beneficial features and is therefore used in the production processes all over the world.
Consequently, you can be sure that gold will also play an important role in the future and will likely not lose its importance at all.
Questions To Ask Yourself Before Buying Precious Metals
Buying physical gold or silver as an investment is not always as straightforward as it sounds. Novice investors often get lost in a variety of options: Should I buy minted bars or sovereign coins? Maybe that limited edition coin would be a good investment?
Sensible investors evaluate bullion options by the price and premium on the gold spot price. But the premium is only one part of the equation. It doesnt necessarily mean that youll get that premium back upon the sale.
Worse, there are unscrupulous dealers out there. They will try to trick you into buying numismatics and other collectibles that have a huge premium and wont retain their value over time.
As a result, its essential to get an understanding of precious metals before dipping your toes into this market.
In this article, Ill answer some of the most important questions you should ask yourself before buying precious metals.
What Is the Best Way to Invest in Precious Metals?
You can invest in precious metals by buying the physical metal like bullion bars and bullion coins or through financial products such as gold exchange-traded funds .
Each method has advantages and disadvantages.
While investing in precious metals through ETFs sounds appealing due to its convenience, there are several key issues that investors need to be aware of in relation to this method of investment.
In this regard, buying the physical metal is a more sensible option.
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The Pros Of Investing In Gold
Inflation insurance One reason people buy gold is to protect themselves from inflation. The thinking is that if the Australian dollar gets significantly devalued, gold will retain and even increase its value.
Disaster insurance Similarly, some people regard gold as an asset that will always be in demand, no matter how bad times get. The idea is that you will always have a valuable asset, even if financial depression or a major war causes the economy to collapse or your home to be destroyed.
Diversification A lot of investors like to spread their money around, rather than putting all their eggs in one basket. So you might buy stocks, bonds, property and gold, figuring that if the markets crash and your first three investments plummet in value, your gold will retain or increase its value.
Simplicity Buying gold coins or gold bullion is easier than picking the right stocks or property to invest in.
Tangibility Some people feel uncomfortable buying assets they cant touch like shares or cryptocurrencies because theyre sceptical about whether an electronic file can retain value over the long term. So they prefer something tangible like gold, which they believe is more likely to retain its value, no matter what happens in the years ahead.
The Us Bimetallic Standard
The U.S. government continued on with this gold tradition by establishing a bimetallic standard in 1792. The bimetallic standard simply stated that every monetary unit in the U.S. had to be backed by either gold or silver. For example, one U.S. dollar was the equivalent of 24.75 grains of gold. In other words, the coins that were used as money simply represented the gold that was presently deposited at the bank.
But this gold standard did not last forever. During the 1900s, there were several key events that eventually led to the transition of gold out of the monetary system. In 1913, the Federal Reserve was created and started issuing promissory notes that could be redeemed in gold on demand. The Gold Reserve Act of 1934 gave the U.S. government title to all the gold coins in circulation and put an end to the minting of any new gold coins. In short, this act began establishing the idea that gold or gold coins were no longer necessary in serving as money. The U.S. abandoned the gold standard in 1971 when its currency ceased to be backed by gold.
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The End Of The Gold Standard
Golds importance changed in the U.S. in 1971, when President Nixon ceased the convertibility of gold into U.S. dollars, thereby ending the gold standard. The decoupling of the dollar with gold, took the brakes off golds inherent way to control inflation. Following the halting of gold standard, gold prices soared during the 1970s and 80s and then traded flat for the next 20 years.
Although gold has not been a perfect inflation hedge, and has lower annual returns than the stock market, its diversification benefits are sound and could support the validity of adding a gold allocation to a diversified portfolio.
How To Buy And Keep Gold Coins
If you decide to buy gold coins, get it from a reputable dealer or financial institution. We wouldnt buy gold coins on Craigslist, but thats just us.
If you buy gold coins from individuals or from anyone else youre not sure of, have the gold coins authenticity verified first. You dont want a collection of gold-plated lead.
U.S. gold coins come in one, one-half, one-quarter, and one-tenth ounce denominations. You pay a premium over the price per ounce when you buy gold coins, which is how the dealer makes a profit.
You may pay a higher premium if you buy gold coins less than one ounce each. You should generally buy bullion coins, such as the American Gold Eagle, Canadian Gold Maple Leaf, or South African Krugerrand.
Collectors coins, called numismatic coins, are a different game than bullion gold coins. They can sell at a very high premium, and their prices are dependent on more factors.
Unless you are very knowledgeable about collectors coins, stick with bullion coins.
Once you have the coins, you may be tempted to run the coins through your hands, like Ebenezer Scrooge.
But of course you wont you should leave coins in their cases, away from scratches and fingerprints.
Dont even think of hiding gold in your house, unless you have a safe. Thieves know where to look, or they can find it with a metal detector.
For very little money, you can rent a safe at a bank for your gold and other valuables.
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What Is A Safe Haven
An economic catastrophe like the global financial crisis also causes investors to act to protect their assets.
Morningstar classifies an asset as a safe haven if it holds, or even increases, its value during periods of market and economic uncertainty and downturns. The asset should preserve capital, withstand market volatility, and provide diversification across a portfolio.
Gold is an asset which is virtually permanent, with no significant erosion of quality over time, could arguably be considered a safe haven.
To assess gold’s viability as a safe haven, Inton first looked at how gold prices have trended against the US economy.
“Looking at the changes in the real gold price and real GDP growth quarter over quarter since 1990, we see that changes in the gold price hold a weak relationship to US GDP growth. We believe this provides evidence that gold is a decent hedge to US economic cycles.”
Next, he looked at how gold prices have trended against equity markets.
“Looking at the changes in the gold price and S& P 500 quarter over quarter since 2000, we believe the gold price’s weak relationship to the S& P 500 provides evidence that gold is a decent hedge to equity markets,” Inton says.
“We established that gold’s functional purposes, including for investment purposes that include safe-haven viability, should be sustainable in the long run.”
How To Add Gold To Your Ira Blanchard Gold
!? You are actually turning part of your retirement nest egg into gold. That stated, is putting a gold IRA in your portfolio the best move for you?
A gold IRA often features higher fees than a standard or Roth IRA that invests entirely in stocks, bonds, and mutual funds. A gold IRA can work as a good hedge versus inflation but is likewise concentrated in a single asset class Pros And Cons Of Investing In Gold. The Shifting Rate of Gold Gold rates per ounce have ranged from $255 in September 1999 to a high of $1,937 in August 2020.
So there has actually been considerable growth, yet likewise some retrenching. A gold Individual Retirement Account is a specie of a private retirement account that enables investors to own physical gold, silver, platinum, and palladium instead of more-usual assetssuch as money, stocks, and bondsto which routine IRAs are limited. Pros And Cons Of Investing In Gold. The possibility of using gold and other products as securities in an Individual Retirement Account was produced by Congress in 1997, says Edmund C.
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Investing In Gold Makes You More Independent
In general, buying gold can be great for you if you look for something that is not highly traceable, easily convertible to money and independent from other markets and decisions of people in general.
In fact, gold gives you a high level of freedom and it is an asset class where you can become independent from the system to a certain degree.
As you can see, investing in gold can make sense due to various reasons.
However, it is still not all upside and we should also talk about all the problems with investing in gold in the following chapter so that you can better decide whether you still want to invest in gold or rather want to put your money into a different asset class instead.
The Cons Of Owning Gold
1) Stress of ownership. While its often a pro to have a tangible asset it can be a double-edged sword. Storing gold takes not only space but you must also secure the asset whether that is in a safe or simply hiding it. If you should experience a break in to your home you can lose this asset in minutes and its nearly untraceable. Youll have to manage a certain level of paranoia securing and managing your gold.
2) Gold can be a dead asset. This is true simply because it has minimal commercial use unlike silver, copper or other precious metals that are widely used in industrial applications. Gold is not utilitarian as other tangible assets such as real estate. You cant rent it out as you can a home. Gold has no earning power outside of selling it when gold prices rise and then, well, you no longer have gold.
3) Hidden costs. People often forget about the costs of buying and selling gold not to mention storage costs, insurance costs and transportation costs. Investing in gold costs more than most people realize.
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Historic Cultural And Collectible Value
Gold coins are known to have more sentimental value than gold bars both historically and culturally. Simply put, gold coins can be more ideal for you than gold bars if you want to invest in something with a more historical and cultural value. Again, gold coins have more collectible value than gold bars.
Disadvantage Of Gold Coins
Because of the design and the manufacturing costs to mint the coins, gold coins carry a slightly higher premium compared to their same unit size as gold bars. Therefore from an investment perspective, buying gold coins means that you will get less gold for what you pay. However, the premium will decrease if you buy in quantity , and you will pay a cheaper gold price per gram.
Bear in mind that there is a difference between the premium for a collectible coin and the premium for a gold bullion coin. In general, the premium for a gold bullion coin is lower than the one for a collectible coin. In general, gold coins minted after the 1930s are regarded as the most cost-efficient way of purchasing gold coins. Their market value is determined almost exclusively based on their gold content. Other gold coins such as proofs, commemorative or historic coins will have a much more higher price.
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Owning Gold Is A Status Symbol
Gold can not only be a great investment, but it is also considered a status symbol and if you have lots of gold at home, people think you are wealthy and you will likely have a pretty high standing among your peers.
Not only can you invest in physical gold bars, but investing in gold may also include investing in gold watches or gold art which can also be considered kind of a status symbol and also looks pretty nice at the same time.
Types Of Gold Investments
There are several ways to own gold, both in its physical form, or indirectly. The following are the three broad categories:
A direct gold investment means you own physical gold. This can be in the form of gold bullion or rare and numismatic coins. Gold bullion, which can be in the form of gold bars or officially minted coins, is bought and sold at a price close to the spot price of gold. In the case of rare coins and numismatic coins, the value depends on the quantity of gold in each coin, as well as other factors. The rarity, the age, and condition of a coin will all affect its value. Investing in gold bars and coins introduces a range of new challenges like storage, transport, and insurance. On the other hand, you know exactly what you own and there is no counterparty risk.
Over the last 50 years, a large number of financial products offering exposure to the gold price have emerged. First came exchange traded futures and options, then exchange traded funds , and more recently contracts for difference . These products allow gold to be traded electronically, which is cheaper and more efficient. However, there are some concerns that these products mean you are still to some extent exposed to the financial system. Ultimately whether or not you own paper gold or physical gold will depend on your reasons for owning it.
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Sometimes The Cost Of Storing Induces A Negative Rate Of Return
Physical gold has numerous disadvantages. One amongst the most important disadvantages is the storage costs. The price of gold fluctuates a lot and is easily stolen or lost. Additionally, it has no dividend payments. Hence, the profits that you earn from selling the precious metal are not that high. Moreover, the cost of storing and insuring the precious metal results in a negative rate of return.
What Are The Pros And Cons Of Investing In Gold
Gold aficionados swear by the stuff. Others think it makes a poor investment. The truth is in the middle it suits some people but not others.
Like most financial products, gold isnt a one-size-fits-all solution. Investing in gold will suit some peoples financial position and outlook on life, but not others.
To help you work out whether gold is right for you, weve got five reasons why it might be suitable and five reasons why it might not.
The pros and cons explained
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Size And Ease Of Storage
As far as storage is concerned, you certainly want your investment to be as secure as possible both in monetary and physical terms.
Just like gold bars, gold coins vary in size. However, gold bars are much bigger in size and cannot be a perfect option if you’re looking for a discreet form of investment. That being said, gold coins can be easily stored while gold bars are bulky and can only be stored in secured insured vaults.
Top 10 Buying Gold Pros & Cons Summary List
|Buying Gold Pros|
|Gold has appreciated in value over many years||Gold price swings over time|
|Gold has a long track record||Not a good short-term investment|
|Gold is used in many industrial processes||Premiums are often pretty high|
|Gold is still a status symbol||Storing gold may be a problem|
|Gold is not easily traceable||Gold is hard to move across country borders|
|You can diversify your portfolio||Gold mining is bad for our environment|
|Owning gold is great during financial crisis situations||Gold is mined under pretty poor conditions|
|Gold is independent of management decisions||Lower yields compared to other asset classes|
|Gold comes in many different forms||Your gold may get stolen|
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