Should you invest in Gold?

Gold has always been regarded as a safe investment option. In this article, we go further in to understand how gold as an investment may affect your finances.

When it comes to safeguarding your money, investing it is always a wise option rather than keeping it in a safe. For this purpose, gold is considered to be the safest option because, when economies are in a recession, prices of gold do not normally change. This metal has always been respected due to its richness and value. Unlike currency, gold has held its value over the ages and it represents one’s wealth - families use it to pass on their wealth to their next generations. It also acts as a safety net when one can’t rely on currencies or other forms of investment.

If we look a potential downside of gold investment, we observe that it might not be the best option as a very long term investment, because sometimes the prices of gold remain unchanged for longer period of times and hardly reap any returns for the investor. But, gold is considered to be the best option when you are trying to diversify your portfolio or using it as a hedge against the receding stock market. Prices of gold normally move in opposition to stock prices, making the returns and recoveries quicker when an economic downturn appears.

Moreover, some more aspects are discussed below which highlight different intricacies related to gold investment:

1. US Dollar value

Gold prices increased three times between1998 to 2008 and post the great depression. Why? Because the US dollar came crashing down. Same is the case these days - due to zero interest rates and an even bigger economic recession amidst the pandemic, an increase in gold prices have been recorded. Gold has always proven to be superior to the currencies, even the US dollar. Gold may not drastically go through a price increase but it surely holds its value for long periods of time.

2. 2. The supply and demand

The supply and demand of gold has always been affected by the different factors. The price of gold is dependent upon the two forces like any other commodity and speculations also have a prominent impact on the prices of gold. Hence, gold can be a good option to hold onto for a short or moderate period of time and one may actually reap good returns out of it. But, it is interesting to note that you may not be able to sell gold at market prices, as it is bought at discount and sold at premium. Even slightest of government, political, or economic transitions can move the gold prices. It is wise to not hold gold investments more than 10% of your assets because there are other costs associated with it.

3. Different gold investment options

It is important to note that investing in gold in form of coin, bricks, or jewelry is entirely different from investing in gold mining companies or ETFs. The price of gold itself does not affect stock prices or the value of the company. Investing in gold mining companies is the riskiest because it is likely that the company may never find any gold and if they do, there is still a high volatility associated to their share prices. If you buy gold focused exchange-traded funds i.e. ETFs, you actually get stocks as an ownership of gold, not the physical gold itself. The physical asset is owned by a third party on your behalf which may bring in some extra terms and conditions for you to agree of. And if you go for conventional gold investment option, always choose a reputable, credible, and trustworthy seller to buy gold to avoid any issues regarding the purity of the metal and you can easily avoid any counter party risk because of nil involvement of any paper work, middle man, or obligation.

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3. 4. Associated costs

Investing in gold is not cost free. Since it is an expensive and extremely valuable item, it has to be kept in bank lockers for safekeeping which may cost you extra charges. It is a physical asset and requires storage and insurance to prevent security issues and potential thefts. Gold, in its physical form is called bullion. It’s advisable to hold gold as an investment in form of bars and coins to prevent any extra value loss at the time of selling. Furthermore, transactional and mark up fee are also required to be paid while buying and selling the metal. Similarly ETFs may also have brokerage fee associated to them.

1. 5. Liquidity of gold

Gold is a very easy asset to buy and sell due to its high liquidity. It is very convenient to trade in gold on a daily basis hence, even if you invest in greater amount of gold, you can very easily sell it or buy more anytime of the year provided the market prices and fluctuations which will affect your loss or gain. But there are no possible hindrances in buying and selling of this asset in return for cash or goods.

Concluding thoughts

Unarguably, investing in gold is a very wise and safe option. It has much more pros as compared to cons. Gold can be considered a form of money as it is highly liquid and portable at the same time. There are no third party risks if you invest in pure gold and neither does it require any expertise or superior knowledge. Gold is not only a good option to safeguard your money, but also serves as an excellent hedge against political nefariousness, stock market volatility, and many different types of crises. In a world like today, where in every moment, we are exposed to risks on multiple fronts, gold investment can actually be a lifesaver, whether it is for your company’s or your own financial safety.

But, it is also essential to remain informed regarding the potential drawbacks and risks associated to investing in gold as we mentioned in this article.