Gold has historically been valuable because it can be used as a hedge against currency devaluation, inflation, or deflation, and it is a sort of safe haven during some market crashes.
You may want to add gold to your portfolio, fortunately, investors can invest in gold in many ways, not only the common physical gold coins, but also gold ETF, gold futures, and other gold derivative investments that track the gold price movements.
This article is going to talk about how to invest in gold effectively as a beginner, and help you decide which way is right for you.
The biggest demand for gold is the production of jewelry, followed by direct investment in gold, including coins, bullion (a bar or coin stamped with its value and purity), medals, and standard gold bars.
Gold is always viewed as a “safe haven” investment that some people consider to be valuable during periods of uncertainty, insecurity, economic or political turmoil, wars, devaluation, etc., This is a key reason why the price of gold tends to go up in 2022.
Gold is also valuable as an industrial metal because it is a good conductor of electricity, and is also used to make dentistry items and technological gadgets.
✅ Gold has always been a valuable commodity
✅ Gold is a global currency
✅ Gold is an excellent tool to hedge against inflation.
✅ The fall of US dollar also promotes the gold price increase. Forbes predicts that the price of gold may eventually surge to $7,500 or more.
✅ Gold is a valuable addition to a diversified portfolio.
The supply and demand of gold
Like any other commodity, gold trades based on supply and demand, and that interplay ultimately determines what the spot price of gold is at any given point. Economic downturns usually see the price of gold rising as demand from investors increases.
The supply of gold in the world is quite large but is often hard to extract. According to the World Gold Council, there are about 190,000 metric tons of gold being used above the ground with 54,000 metric tons located below the ground that can be mined using modern technology.
The value of the US dollar
The price of gold is usually inversely proportional to the value of the dollar since gold is denominated in dollars. A stronger dollar tends to make the price of gold lower, while a weaker dollar may drive the gold price higher by increasing demand.
Gold has been viewed as a safe-haven investment and a store of value, so gold and silver offer ample trading opportunities and high liquidity.
You may think " should I invest in gold". In my opinion, gold is worth investing in the long run.
Many experts consider gold to be a volatile investment and advise keeping holdings at less than 10% of an overall investment portfolio.
One of the best benefits of gold investing for new and experienced investors arises from the diversification it can provide to any investment portfolio.
Many experts also advise buying small amounts of gold over a long period of time. Often the price of gold and gold-related stocks is correlated, meaning that the two rise and fall together. Since the results are best suited to long-term investment, most advisors recommend buying it over time to average the cost.
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Physical gold is the most direct way of gold investment. Its market value is tied to the value of its pure gold. When you buy physical gold, you must pay the full price, while the costs involve storage, markups, and related transaction fees. It may be a simple and safe way for beginners, but the costs may become too high.
Gold jewelry is easy to buy, but it has very high markups which often make it a poor option for gold investment. Pure gold is 24 karat (how purity is measured), however, a lot of jewelry can be much lower in terms of purity. Aside from a pure investment perspective, some people buy jewelry for its design, which may increase its resale value.
⭐#2 Gold Bullion, bars, and coins
Many investors choose this option for owning physical gold, despite the markups that come with the work involved in turning raw gold into bars or coins. In addition to the cost markup, gold dealers also add their own sales markup to the price, making it a more expensive option.
There are several ways to gain exposure to gold price movements without actually holding gold.
⭐#3 Gold certificates
Gold certificates are notes issued by a company that owns gold, giving an direct investor exposure without owning the physical asset.
The main issue with this form of gold investment is the trust factor. The certificates are as worthy as the company backing them. This is why The Perth Mint, backed by the government of Western Australia, is one of the most desirable options for gold certificates in the world.
⭐ #4 Exchange-traded funds and Mutual funds
Investors that don't care about holding physical gold but wish to have direct exposure can opt for an exchange-traded fund (ETF) like SPDR Gold Shares， it is the first gold ETF specifically to track the price of gold was launched in 2004.
There are other sorts of funds, like Mining-focused ETFs, Vectors Junior Gold Miners ETF. In addition to gold, some ETFs also have exposure to other metals.
You can research the various costs and fees of each ETF to determine what is affordable and appropriate for your portfolio.
⭐ #5 Gold Futures /CFDs
A futures or CFD contract for gold is an agreement between a buyer and a seller to exchange a specified amount of gold at a date in the future. The value of the contract fluctuates as the price moves up and down, with the accounts of both the seller and buyer being adjusted accordingly.
Gold Futures/CFDs is a kind of derivative, traders track the gold price movements and use leverage (i.e. credit) to magnify the profits and losses.
The advantages of trading with leverage:
✔️ Greater accessibility with less capital
✔️ Take advantage of all market fluctuations
✔️ A variety of markets and assets
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⭐ #6 Gold mining stocks
Mining stocks are a way to invest in the gold industry, rather than the physical asset itself. Gains can be made in several ways: first in the increased value of gold (because the stock values go up accordingly), and also from increased production and business expansion.
There are still risks to owning gold mining stocks. Sometimes the company underperforms, the workers go on strike, and disasters like a mine collapse or gas leak can occur. These factors can cost lives and halt production, driving prices down in the aftermath.
⭐ #7 Streaming and royalty companies
Streaming and royalty companies provide miners with cash upfront in exchange for the right to buy gold for future reduced rates, allowing them to get paid in gold without going through the expense of running a mine.
Each option has its own trade-offs. Like any other investment, there's no standard option for investing in gold, however, research into how gold price works and learning about the pros/cons of each type of gold investment will help you make the right decision.
|Gold Investment Ways Summary|
May be difficult to liquidate
Questionable resale value
Gold jewelry with 14k+ content
No need to store the physical asset
Value depends on the company
Perth Mint Certificates
Minimal capital required
Chicago Mercantile Exchange
Tracks gold prices
Operating risks of mine
Barrick Gold (NYSE: ABX)
Goldcorp (NYSE: GG)
Newmont Goldcorp (NYSE: NEM)
Gold ETFs/Mutual Funds
Direct gold exposure
No upside beyond the change in gold price
SPDR Gold Shares (NYSEMKT: GLD)
Streaming and royalty
Tracks the price of gold
Consistently wide margins
Indirect exposure to gold
Mine operating risks
Investment exposure to other commodities
Wheaton Precious Metals (NYSE: WPM)
Royal Gold (NASDAQ: RGLD)
Franco-Nevada (NYSE: FNV)
There are many expert opinions throughout the gold investment world. Here are our top 10 tips to help you make the best decision.
1. Purchase some physical gold and silver
Gold functioned as money for 5000 years, and it was only in 1971 when the gold standard stopped being used. Having said that, experts recommend that you have some as insurance against the crash of the monetary system.
2. Don’t invest solely in indirect ownership over the long term
Certain paper products do not guarantee that you actually own the gold and often include cash settlement clauses that will pay you out in cash instead of physical metals. In a harsh monetary crisis or war, this may cause an investment loss.
3. Ensure it is under your direct and unencumbered ownership
If you buy physical gold, experts recommend that you store it close to where you live in a jurisdiction that has strong private property rights so it cannot be pledged, hedged, or leased out.
4. Purchase only the most liquid coins and bars
Experts recommend that you invest in coins as much as possible because they are easier to use than an entire gold bar. Ensure that the coins are legal tender with a low fabrication fee.
5. Build up stocks over time
Gold is a traditional store of value as well as monetary insurance that will help you build up savings over time. In hard times of war and famine when currencies lost their value, gold and silver were used to purchase homes and provide food for weeks.
6. Avoid using credit and buy gold with savings
Experts recommend saving before investing so that any gold bought with savings is fully yours. This should apply to all types of investments.
7. Only invest money you don't need for five years
According to some analysts, gold returns are best realized over long time frames, so investing all your money in gold right now may mean missed short-term investment opportunities.
Since markets are volatile, they advise that you use gold investment as a security for the long term, and have some capital on hand to invest in current opportunities.
8. Set short and long-term objectives
Experts recommend that you set objectives and review them often, avoiding any quick decisions that might compromise your overall strategy.
9. Invest only what you can afford
Most investment advisors recommend the use of dollar-cost averaging to buy small amounts over time in order to spread the purchase cost and build a sizeable position.
10. Allocate Gold to 10-15% of Your Investment Portfolio
Analysts recommend investing no more than 10-15% of your investment portfolio in precious metals, including gold. The best portfolios, according to many experts, are diverse portfolios that are protected from any sharp fluctuations in the value of any one asset type.
There are 7 popular ways to invest in gold, such as buying the actual metal, purchasing gold funds, and buying gold options.
Many beginners prefer investing in physical assets like gold coins, bars, or bullion. Experienced investors prefer a more liquid and low-cost way to invest, like mutual funds and exchange-traded funds that invest in the shares of mining companies.
Advanced investors may trade gold futures or options. This is a risky investment and not suited for beginners.
Whatever form of gold investment you choose, you can rest assured that gold investment has been around for thousands of years and is unlikely to disappear anytime soon.
So do your research, invest responsibly and invest wisely!
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