The yellow metal has always had a gigantic pull and a prominent role to play in shaping the economy of several countries. For several centuries, gold was considered a universal currency, accepted all over the globe.
Even though it may not be the principal form of currency anymore, it continues to make for a robust, long-term investment option. What’s more? It may be one of the most valuable additions to your portfolio, especially in a bear market.
Due to its widely recognized value even today, gold continues to enjoy distinguished fandom, which places immense faith in its power to make them richer in time. The rise and the fall of this metal can be baffling sometimes, but despite that, it continues to remain one of the most preferred investment options of all time.
Find yourself to be lured by the charm of gold’s glitter? You may want to consider investing in it. Here’s what you will need to know to make a sound investment in gold.
Why Invest in Gold?
For a Balanced Portfolio
How many times have you been advised to build and maintain a diversified portfolio to keep your investments safe even in a bad economy? All the time, I suppose. Well, investing in gold can help here.
Interestingly, the price of gold tends not to move in the same direction as other kinds of investments like stocks and bonds. So, rest assured that gold will keep you afloat and thriving even as your other investments wither away.
That does not, however, imply that you put the majority of your money on gold. Always keep your portfolio balanced. Consider your financial plan and invest accordingly. Most investment gurus will advise you to have no more than 5-10% of any one commodity in your portfolio.
To Hedge against InflationGold can help you hedge against inflation or a weak currency. Gold has been universally acknowledged as a store of value, because of which its price relates inversely to a country’s currency. This implies that even if the currency tanks due to inflation or other financial reasons, gold will continue to shine. It, therefore, makes sense to have it in your portfolio.
What Determines Gold Price?Gold prices tend to go up in case of the following:
- As already mentioned, gold acts as a hedge against inflation, which is why investors stock up on it when they expect high inflation.
- When investors expect the value of their currency to fall (compared to commodities and other currencies), they rush to buy gold.
- If the people of a particular nation are experiencing or expecting a political turmoil, social upheaval, war or act of terrorism, they’ll likely start amassing gold.
- When the stock market crashes, investors use gold as a safe haven which gives gold prices a thrust.
- When investors expect low inflation, the demand for gold tends to weaken as the fear of the value of currency being eroded is minimal.
- When the market does well, most investors tend to sell their gold reserves to divert their money into more lucrative and quick yielding investments in the securities market.
What Form of Gold Should You Buy?Owning gold jewelry is owning physical gold, but isn’t exactly a great investment idea. That’s because the buyer incurs a heavy loss when buying jewelry in the form of wastage and making charges.
Bank coins may not turn out to be a great investment idea either as they are sold at a premium. Moreover, these coins have low liquidity rate and the banks that sell them may not necessarily purchase them back.
Bullion bars make for sound investment options. Consider buying gold bullion as it carries a standard weight and refinement that can be purchased for the existing price of gold, plus the infinitesimal costs related to refining, fabricating, and shipping it to you. These bars are a great way to own physical gold, particularly if you are going for long-term investment.
Gold ETFs (Exchange Traded Funds) have become extremely popular in modern times. Not only are they an easy and a safe mode to buy gold, their charges are also less and they can be accessed electronically. However, with ETFs, you never really get to “see” or “touch” your holdings.
When Should You Invest in Gold?While there is no ideal time for investing in gold, it is usually considered prudent to do so when inflation is expected to come into effect and devalue the nation’s currency. Look for signs such as a dwindling stock market or socio-political cataclysms as they may point towards the depreciation of your country’s currency in the near future. Another red flag to look out for is the reserve banks’ decision to print more local currency.
For a first-time or inexperienced investor, it makes sense to invest in gold for the long term. Economies can be capricious so you can buy when the price of gold goes down, especially if you think your country is headed towards political mayhem. This way, you will not have to worry about buying when everyone else is buying and driving the price up.
Identifying a Good Gold Firm to Buy FromBy taking the following steps, you can ensure that you’re buying gold from a reliable firm:
- Research the profile of the firm you plan to buy from. This can be done online. Check their certifications, standardizations, ratings, testimonials, and number of complaints registered and how they were handled. If you see a steady complaint record, it could mean trouble, even if it is a highly rated firm.
- Nothing beats the trustworthiness quotient of a firm better than a solid track record, which speaks for itself. The longer it has been in business, the more reliable it will be.
- Go for firm which will make it a point to keep you informed and address your every query, whenever the need arises. Do not fall for tall, unrealistic promises and sales pitches. Take that as a warning and run in the opposite direction.
Investing in gold is an effective way to protect your money from volatile economy, weak stock market, inflation, deflation and dwindling value of currency. It works best when you want to hedge against financial uncertainties. Before buying gold, however, ensure to do your homework on the organization you plan to purchase it from. Also, make sure that the form of gold you purchase is in keeping with your financial plan, goals and aspirations. And yes, do not hesitate in consulting your financial adviser before making any kind of gold investment to ascertain that it supplements and complements your overall portfolio.