Investing in gold is slowly gaining traction as an alternative mode of investment. Considering the current economic conditions, many are turning to gold due to its enduring value. In this article, we’ll take a look at the advantages and disadvantages of investing in one of the most coveted metals on earth.
Why Is Gold So Precious?
In the past, gold was used by artisans to create jewelry and relics. Their works were often reserved for people of high status, such as rulers. An example would be the Ancient Egyptians who used it to decorate the tombs of their fallen leaders. The Chinese also used it to create coins.
Soon, gold became valuable to modern societies. Gold bars and coins were used as a medium for exchange. Today, the jewelry and electronics industry creates a steady demand for the metal. For investors, it is seen as a safe investment that every capitalist should consider.
How can We Invest in Gold?
There are different ways for people to invest in gold. Here are some of the popular choices:
- Physical ownership of gold bars or bullion
- Purchasing and trading gold jewelry and coins
- Purchasing stocks of gold mining companies
- Gold certificates
- Gold Exchange-Traded Funds (ETFs)
Pros and Cons of Investing in Gold
Here are the pros and cons of investing in gold. Hopefully, this will help you decide whether joining in on the gold rush is worth it.
1. OWNING GOLD BARS OR COINS IS TANGIBLE INVESTMENT
Some investors aren’t comfortable with investing in something they can’t hold on. This is especially true for stock market newbies who are doubtful of owning a stock certificate only. However, investing in gold is different because of its tangible nature.
Investors who opt to buy jewelry or bars can feel secure knowing that their investment is in their control. This is in comparison to bonds, stocks, and cryptocurrency, which always has this looming skepticism.
2. DIVERSIFIES YOUR PORTFOLIO
As an investor, it’s best not to concentrate your resources in one area. In simple terms: don’t put your eggs in one basket.
Investing in gold helps in this regard. Instead of pooling all your money for stocks or bonds, try to invest in gold. It will minimize the risk in case of an economic crisis. In the case of the stock market crashes, you still have gold to fall back on.
3. GOLD IS A HEDGE AGAINST INFLATION
Inflation causes fiat currencies to depreciate—consequently, gold’s price increases with other goods. Therefore, Gold is a hedge against inflation’s harmful effects: while the dollar-value of fiat currencies falls, the dollar-per-ounce value of gold increases.
4. GOLD IS ALWAYS ON DEMAND
As said earlier, plenty of industries create a demand for gold. Aside from jewelry and electronics, gold is used by the medical sector. The fine-dining industry also infuses gold into meals for a hefty sum.
Its notoriety makes it valuable and easy to liquidate. During the third quarter of 2020, the price of gold has reached nearly $1920/ounce. Some predict that its price may go as high as $3,000 by the end of 2021.
5. GOLD INVESTMENT IS STRAIGHTFORWARD
For investors who get tired of numbers, gold is a good investment. Investing in the stock market requires a profound understanding of corporations and their fundamentals. Based on the information available, you have to weigh in whether investing will be worth it.
In comparison, gold investment is pretty straightforward. Sure, it still requires knowledge of the market. But it can be a simple as purchasing it, storing it, and waiting for the right time to liquidate it and turn a profit.
1. GOLD REQUIRES PLENTY OF MAINTENANCE
Investing in gold requires the payment of various fees. For example, gold dealers can charge premiums for the purchase of gold. Try to invest via mutual funds (which are similar to stocks). The commission and maintenance fees can be very discouraging.
Should you invest via jewelry or bullion, you also need to invest in proper storage and insurance.
2. GOLD INVESTORS MUST BE ABLE TO VERIFY GOLD
Remember what we said that gold investment doesn’t involve that many numbers? In exchange, gold investors must be able to verify the authenticity of gold. It can be challenging, especially when dealing with jewelry, bullion, and coins. You can seek technical expertise, but that will only come with additional costs.
3. GOLD DOES NOT PRODUCE PASSIVE INCOME
Gold only produces a profit if you sell it. While it’s in your possession, it won’t have passive income. This can come as a shock for stock investors, who are used to receiving dividends.
Ready to Cash in On the Gold Rush?
Once you weigh in these pros and cons, it’s time to decide. ‘Investing’ usually refers to stocks, bonds, and even real estate – and it’s time to change that.
Investing in gold is an option that investors should always consider. It can yield higher returns the longer you hold it. It is thus optimal for long-term investors who are looking to diversify their portfolio.