Gold is a precious metal that has been used as a form of currency, jewelry, and investment since ancient times. It’s considered one of the safest investments available because it has intrinsic value, meaning you can’t create more gold from thin air (unlike the fiat currency). It has been a valuable commodity for centuries and has been used as a store of wealth for just as long. But is investing in gold a good idea? Let’s explore the types, pros, and cons of gold investments so that you can make an informed decision.
A Brief History of Gold
Since the start of history, as we know it, gold has been used as money. For thousands of years, it has stood for prosperity, beauty, and power. Gold was also utilized as an investment by many people throughout history, from monarchs to emperors to ordinary people who wanted to preserve their wealth from inflation or other economic crises.
Different types of gold investments
When it comes to investing in gold, there are a few different ways you can go about doing it. You can either buy gold bars and coins, invest in gold stocks or ETFs, or purchase physical gold that is stored with a precious metals dealer.
Buying physical gold: The conventional way of investing in gold is by buying physical gold, which can be gold coins, gold bars, gold jewelry, or any form of gold.
Mutual Funds and ETFs: If you are not into buying physical forms of gold and are a beginner in this area, then ETFs and mutual funds are good alternatives. Each share you own represents a pre-defined quantity of gold. These can be easily bought and traded, similar to stocks. This form of investing is also known to be easier for someone new to gold investments because of the low minimum requirements and liquidity.
Buying gold mining stocks: You can also look into getting gold mining stocks, which means that you own a part of companies that are specialized in the field of gold. Despite this being an effective way of earning a profit, it depends on the performance and operations of these companies.
Buying futures and options: gold futures are contracts you can purchase or sell at a specific price on a specific date, regardless of any other external considerations. In contrast, an options contract is a contract that grants you the right to buy or sell gold if its price reaches a specific price on or before a particular date.
Pros of investing in gold
These are the benefits of investing in gold:
- Potential Hedge: Gold acts as a potential hedge against difficult economic times and inflation. It performs well in different economic climates and has a low correlation with other assets. Inflation is the increase in the money supply that causes prices to rise. If you own gold, it will not lose value as inflation rises because it is unaffected by monetary policy. Unlike paper currencies, gold has intrinsic value as an industrial metal used for jewelry and electronics manufacturing.
- Helps you diversify your profile; it gives you the chance to diversify your portfolio. From the perspective of an investor, it is usually preferable to invest in a variety of assets rather than placing all of your money in a single asset. This raises your chances of improving your profits from various sources while reducing risks and increasing diversification.
- Multiple Options to Choose from: When it comes to investing in gold, you can select the gold investment that you are comfortable with and that helps you attain your future financial goals.
- High Liquidity: Unless there is a market crash, investing in gold is quite liquid; you can sell it whenever you want without incurring a fee.
Cons of investing in gold
Now that we have covered the advantages, let’s move on to explore the demerits of gold investments.
- Security and Storage Issues: When you intend to invest in actual gold, storage, and security concerns arise. Consequently, this may be among the most significant drawbacks of investing in gold. To store gold in a bank or vault, you may need to invest extra money.
- Not ideal for short-term investments: Gold investments are not a good choice for short-term investments because there will be little growth potential in such a short period of time. Even if there were any growth during those first few years, it would probably be minimal compared to other investments like stocks or bonds, which tend to perform better in terms of price appreciation over shorter periods. If you’re looking for a way to make money quickly and easily, then we would advise steering clear of this investment option.
- Additional Fees: Gold ETFs and mutual funds also have additional charges attached to them, such as brokerage fees. So, you will have to pay extra aside from the value of the assets you buy.
- No opportunity for passive income: Finally, there is no opportunity for gold assets to increase your income; therefore, you won’t be able to use them to generate passive income.
- If you’re looking to diversify your portfolio and want some protection against inflation, then it might make sense to buy some bullion or coins.
- Among the different gold investment options, ETFs and mutual funds are the most beginner-friendly due to their low minimum criteria.
- Make sure you do your research and invest in a gold investment that helps you meet your financial goals.