Ways to Invest in Gold
Gold has been a popular choice for investors over the years. As a result, it is now one of the most liquid of all hard assets and stores of value. Many people can easily buy and sell gold in person in their hometown or make purchases online from multiple sources.
Other precious metals that investors turn to when shielding their wealth or diversifying their portfolio include palladium, silver, and platinum. But these assets do not provide as many easy outlets for selling should the need arise to liquefy the asset. Gold, due to its high level of liquidity, provides a safe haven asset with fewer risk factors than most others.
When it comes to how you want to invest in gold, you have many choices within modern markets. You can choose one or decide to try multiple methods at once. It all depends on various factors:
- How much do you plan to invest? When choosing a type of gold investment, what you have to spend is important because it helps you narrow down your investment choices.
Gold brokers often have a minimum buy order, sometimes upwards of $25,000. On the other end of the spectrum, you can buy very small amounts of Goldcoin, a gold-backed cryptocurrency. With all the different types of gold investments, including jewelry, mining stocks, futures, bars, and coins, most investors will be able to find a gold investment that meets their budget.
- Where do you live? If you live in a country where your dollar is experiencing hyperinflation, the move to gold can represent a way to protect your wealth during a time of currency debasement. If the region you live in is very stable with low inflation, investing in gold may not seem as important. When your country is undergoing civil unrest, war or political divisions, storing wealth in gold may seem an important step to take in light of the economic uncertainty.
- How old are you? Generally speaking, younger investors may take on more risk, which may reflect in their portfolio decisions. In that case, they may want to divert more funds to stock trading as opposed to investing in gold. While many people consider gold investing to be appropriate for those who are already wealthy, such as those in the 40-65 year age range, gold has proven over time that it has long-lasting attributes as a store of value. So even if you’re very young or very old, a gold investment offers diversification and a hard asset that can carry the tides during times of uncertainty.
- What is your risk tolerance? Generally, people consider gold to be a low-risk investment because of its long history as a store of value and its high level of liquidity. Knowing what you can risk or how much money you can afford to lose is important in creating any investment strategy. Risks vary between the different types of gold investments. For example, gold bars issued from a national mint may (or may not) offer the investor more security over a private company issuing coins from an online site.
- How savvy an investor are you? Do you involve yourself in your portfolio management, and has this been a successful strategy for you? Or do you prefer to have an expert broker or financial advisor handle your investments? The answers to these questions can help you decide if investing in gold mutual funds or a gold-backed cryptocurrency is a more appropriate investment product.
Which gold investments make the most sense to you?
Investing in gold is a personal decision or one that you make along with your financial advisor. Either way, it’s essential to know your options before making a decision. The following gold investments are available for your review to help in your determination process:
- Buying gold funds – Investors can hedge against market volatility by investing in funds that hold gold assets. The investor has numerous ways to diversify this way, including through an exchange-traded fund (ETF), a mutual fund, or any fund that contains mining companies or gold assets. When investing in gold in this manner, you will not directly own or hold the gold assets. Instead, you hold other types of assets that include exposure to gold.
- Physical gold – Physical gold comes in many different forms. Jewelry is one way of holding onto wealth and presents a nice inheritance as well. Bullion bars that come from a national mint are great for those who want to invest in gold heavily. The dense bars are relatively small for storing and cost approximately $2000/oz (at the time of this writing). Physical gold coins come in two distinct forms. First, they may be minted by governments. In that case, they often can act just like a regular currency coin, meaning they are not just an investment but also a means of payment. Other coins may be more for collectors, and while they may also hold value, they are not an official government currency. All forms of physical gold are available for purchase through various online sites and physical locations, be it the official government mint, a private company, or a collector.
- Paper gold – You can buy a certificate of ownership that represents a gold investment, but you do not physically hold the gold yourself. This way of investing in gold can help save the costs of shipping, storage, security, and insurance. It’s important to have full trust in the company or government that issues the certificates so that you know your rights to the gold in the certificate will be available for years to come.
- Gold derivatives – Traders may want to buy and sell contracts to buy or sell gold at a later date. Also known as futures contracts, this way of investing in gold constitutes another method of hedging risk. You can essentially buy an option to buy at a certain price by a specific date while at the same time buying a contract that performs opposite to the first option, thus significantly reducing downside risk.
- Gold-backed cryptocurrency – By purchasing a gold-backed cryptocurrency such as GoldCoin, you gain the convenience of buying fractional shares of gold quickly and easily, while still knowing that you own the gold that is backing it up. Gold-backed crypto coins offer convenience, but they also help people who are interested in expanding their holdings into cryptocurrencies get their feet wet. Goldcoin is one such investment vehicle and is built on the Ethereum Blockchain, with a large supporting network of infrastructure surrounding coins derived from the blockchain.
What is the best way for a beginner to invest in gold?
Each beginner will have their own set of circumstances when first investing in gold. If the investor prefers to conduct their first transaction in person, they can easily find gold jewelry or coins to purchase and save from a pawn shop or jewelry store. However, a novice may not have the knowledge they need to properly verify the gold’s value. In that case, they may want to seek financial advice or speak to several companies offering gold investments to conduct their research.
Otherwise, those that are more comfortable with online purchasing may seek a verified gold seller to buy physical gold. Normally, options and ETF investing is for more sophisticated investors. But with the help of a broker or financial advisor, they are still viable options for investing in gold.
The best way will also depend on how much the investor has to invest in gold. If they want to buy gold bars, for instance, they will need to pay about $2000 per ounce of gold. However, if they choose to buy gold-backed cryptocurrency coins, they can start out with almost any amount and add additional coins as they go.
How much should you invest in gold?
A general rule of thumb that many investors follow is to never invest more than 10% of your total portfolio into one investment vehicle. But, again, it will depend on your personal circumstances. For instance, if you are retired, you may not want to save long term as much as a person just getting out of college. The important thing is to view your gold investment as a diversification method to shield your portfolio from market volatility. This can work no matter what your investment window is – gold and gold investment products have been around for thousands of years, so your investment will very likely last your lifetime.
When should you buy gold?
Historical gold charts reveal that gold often has its best price-performance during the fall and also during the early months of each year. After that, the price levels off during the spring and summer months, with price surging starting again in the fall. According to its past performance, the best times for buying gold are often right when the New Year begins, in early spring, or in mid-summer.
While this is a general rule of thumb, other market considerations may come into play. As an example, during the 2020 Covid-19 lockdowns and subsequent economic crash, gold was surging (out of its normal cycles) from April to August without stopping. This is another indication that investing in gold can help shield wealth during times of financial crisis.
Can you dollar cost average gold?
Some investors may suggest dollar cost averaging gold. This is basically a process of buying small increments of gold on a regular basis throughout the year. This doesn’t make much sense with physical gold if you are paying shipping charges for each delivery of heavy gold bullion bars. Normally, DCA is more appropriate for high volatility, non-physical assets with lower liquidity than gold, such as Bitcoin or some stocks.
Long term gold investors often will wait for a price decrease instead of dollar-cost averaging. They want to avoid the risk of not buying in when prices are optimal. Oftentimes it is during a financial downturn that investors turn to gold as an investment. Unfortunately, everyone at once may be thinking the same thing, and prices may rise to meet demand. A regular buying program of buying gold may work better than a straight dollar-cost averaging program. For instance, you could specify a certain amount of gold that you purchase every year to grow your stores of this valuable asset.
The effects of FOMO
The Fear of Missing Out (FOMO) also comes into play during market upsets. In 2020, as gold prices surged in reaction to the pandemic, many new investors “FOMOd in” by investing when gold prices were at their highest. While dollar-cost averaging may have helped in this situation, it is usually not general practice with gold. When economies or governments are in trouble, however, it may be that turning to gold is a necessity because that is when the attributes of Earth’s most precious safe haven asset truly come to light.
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