How to Invest in Gold (for Beginners)
The allure of gold goes back for thousands of years. This shiny metal has been coveted almost universally and across the globe continuously for all these years. In addition to its desirability as a major element for jewelry, it also has been long used as a form of money.
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In modern times, government issued and backed currency has replaced gold as the accepted form of “money” for everyday economic transactions. However, because of political issues and economic issues, especially inflation, many people are looking to store their wealth in other forms than currency. One of these alternatives is gold, as it is considered to have true intrinsic value compared to paper currency. While the same could be said for other precious metals such as silver and platinum, or precious gems like diamonds, gold has remained one of the most popular forms of currency alternatives.
Gold can also be used as an investment vehicle in addition to being a store of wealth. Gold is bought and sold on financial markets, with the price being readily and timely reported like stocks and bonds. Just like other investment vehicles, you can make a profit by selling your gold for more than you paid for it. Of course, the opposite is true as well – you can lose money if you have to sell for less than you bought it for. In any event, gold can be a lucrative and legitimate way to invest some of your money, plus it has some special advantages as well. This, plus the ways to invest in gold, are discussed below.
Physical Gold Bullion
Gold can be bought in bars of varying sizes, known as gold bullion. This is the purest and most direct ways of owning and investing in gold – similar to buying and possessing investment grade diamond stones. Gold bullion can be bought in bars as small as a quarter of an ounce up to over a two pound bar. The spot price of gold is reported on a readily available and timely basis to help you know what you should pay and what you can get if you sell.
One of the big drawbacks to physical gold bullion is being able to physically secure it safely. This is where investment diamonds have an advantage – as they are much easier to secure safely. However, there are reputable gold bullion dealers that will not only sell and buy gold, but they will also store your bullion in insured vaults (for a fee of course). This also allows you to easily and quickly sell your holdings with these dealers – as you won’t have to transport your bullion to them first. Make sure that any bullion you buy has been reliably certified as at least 99% pure gold and has an imprint testifying to that fact.
Physical Gold Coins
This is another physical way to invest in and hold gold. While it is very popular and readily available, it is not as good as gold bullion. First of all, many gold coins available are not “pure” gold, with many having a gold content of only around 90%. Also, the value of gold coins are also affected by the supply and demand for that particular coin, irrespective of the price of gold itself. The advantage of gold coins is that they are usually easier to transport and store than bullion. Gold coins also often have easier liquidity (ability to sell) than bullion. If you decide to invest in gold coins, make sure that they are investment grade (99% gold content) and come from a reputable mint (usually a government one).
Gold Funds
If you don’t want the hassle and risk of owning physical gold, then a great alternative is to buy an exchange-traded fund (ETF) whose value is based on the commodity. Three of the largest ETFs include SPDR Gold Shares (GLD), iShares Gold Trust (IAU) and Aberdeen Standard Physical Gold Shares ETF (SGOL).
The other big benefit to owning an ETF over bullion or coins is that it’s more readily exchangeable for cash at the market price. You can trade the fund on any day the market is open for the prevailing price, just like selling a stock. So gold ETFs are more liquid than physical gold, and you can trade them from the comfort of your home. You still will have the risk of losing money if the price of gold falls, but these ETFs allow you to avoid the biggest risks of owning the physical commodity: protecting your gold and obtaining full value for your holdings.
Other Considerations
Please note that gold jewelry is not a good option for investing in gold. Even 22kt gold jewelry is not pure gold as per bullion standards and there is a lot of phony gold jewelry floating around – meaning it may say 22kt but is only 14 or 10kt. Also, you almost always will get a low-ball price when trying to sell your gold jewelry.
Another special advantage to buying and actually possessing physical gold bullion is as a financial hedge against political or economic upheaval. In case of war or other disasters, currency may not be widely accepted or because of high inflation will greatly devalue. Physically holding some small sized gold bullion can act as “insurance” in case of such an event.
Always be aware that all investments, including gold, have the risk of losing money. While gold has traditionally held its value over the long term, it can be sometimes very volatile in the short term. Most experts advise that you should limit your gold investments to 10% of your risk capital and in any event only invest an amount you can afford to lose.
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