Gold investments were popular several years back, especially after the great depression. Several investors tried to save what was left of their portfolio by hedging using Gold – the story is everywhere. But what’s left uncertain is if the precious metal still holds its value.
A look at the gold prices in the past five years shows a significant increase in the value of the commodity, from its lowest in 2018 to a record high of over $2,000 in late 2020. Since then, it has traded in ranges, while still retaining its value.
A look at this gold performance chart shows you the performance of the commodity over a period of 5 years. But since you are already here, this article will help provide some light on the subject.
Are Gold Investments Safe?
Investing in Gold assets is safe. In fact, it is a great way to preserve your portfolio. Here’s what we mean.
The economy backs most financial instruments like cash, stocks, and bonds. In other words, they are affected by certain conditions such as crises, inflation/deflation, news impact, and more.
However, the value of a commodity like Gold depends on several factors, including available buying and selling power. This therefore means that the higher the number of people willing to buy it, the higher its value. This explains why the metal has never come close to an all-time low after its surge in the 90s.
Therefore, it is safe to say that investing in gold is a safer form of investment compared to purchasing other financial instruments.
Why Investing In Gold Is Safe
For more clarity, here are a few reasons why Investing in this precious metal is safe.
Precious metals are rare earth elements; they are hard to find. In other words, they have high value and get more demand over time.
For example, an ounce of gold in the 90s sold for merely $30. But the current selling price shows over 5000% increase and more possibilities to keep rising.
While the price keeps rising, there’s a lower possibility that prices will come lower.
Gold investments are a great asset to diversify your portfolio. Since they are not affected by economic factors, they preserve your portfolio during crises or market crashes.
Easy to Sell
Gold is a rare commodity with high demand for it driving its prices higher with time. And having this means selling it a little below market price will be an easy task. This is because several other investors are willing to purchase it at the price you are offering.
How to Invest Safely in Gold
There are several safe ways to invest in gold (even with small funds). We highlight them below.
Buying physical Gold is one of the best ways to invest in metal. This is because you have the commodity and can trade it as you wish.
However, storage and security can be an issue when buying physical Gold. So, ensure you have a secure storage facility before choosing the option.
Some forms of physical Gold you can invest in include.
To purchase gold bars, you can search for dealers online. JM Bullion and American Precious Metal Exchange (APMEX) are some of the best examples.
There, the bars are sold by price, weight, and quantity. So, you can get bars from over $2,000 per ounce to $40,000 per kg.
When getting gold bars, ensure it has a purity of 99.9%. Dealers usually provide proof of this on their site – this is why you should buy from a reputable one. You can go to https://thesmartinvestor.com/banking/investing/find-the-best-gold-dealer/ to learn more about how to find a reputable dealer.
You can also get coins from online retailers. They are more expensive than bars, compared to their purity (96%). This is because coins do not only have monetary values — they have historical values and attractive designs.
Original gold jewelry can serve as a form of wealth preservation. While jewelry might not be as pure as bars, they are expensive.
Like coins, jewelry has historical and generational value. Some might argue that this is the cause of the hype about its prices.
Gold funds are companies that invest in mining shares or physical Gold. They offer Mutual Funds or Exchange Traded Funds (ETFs) to the public at one-tenth of the original asset price.
So, if gold trades at $1000, a gold fund will sell for $100 per unit. This enables you to invest with smaller funds while making good profits.
Funds of companies that invest in mining shares are more volatile compared to those that invest in physical bars. So, ensure you understand the risks of any option you choose.
Futures offer you the right to buy and sell the asset with low funds – leverage. You can trade in a shorter timeframe and still make huge gains.
However, you’ll need a good trading strategy to profit from this system. This is because leverage increases your risk and your reward. So, falling on the wrong side of a trade can mean losing your entire capital.
You can trade futures on the exchange market, like the Chicago Mercantile Exchange. Futures brokers also offer put-and-call options for short-term trading opportunities.
Mining stocks are another indirect means of investing in this precious metal. This is because you are not trading gold per se — you are investing in a company that mines the metal.
In other words, the prices and performance of the stocks are not a reflection of gold’s market price. It depends on the performance of these companies and how they manage their funds. Also, you don’t own any physical assets.
When You Should Not Consider Gold Investment
Yes, gold is a safe investment option. However, you should not consider it if you fall under the following categories.
You Want Quick Gains
Gold, unlike other investment options, does not provide quick gains. You’ll have to buy and hold for years before selling, apart from futures that provide you leverage to trade gold spots within shorter timeframes.
Also, you don’t make regular profits with the asset. You only get the difference between your buying price and how much you sold it.
You Are Not Patient
When investing in gold, patience is your biggest virtue. Since the metal’s prices are volatile, there’s usually a significant price change. So, investing in it requires patience to buy at a low price and sell higher.
It is safe to invest in gold as it helps investors preserve their wealth while doubling their investments. However, as with every investment, it has its pitfalls. So, ensure you research and invest with the right mindset.