Gold has long been considered a lucrative investment. From ancient civilizations to the modern-day, gold has been the currency of choice across the world. Many investors utilize gold as a hedge against inflation and political unrest, as well as to help lower their overall portfolio risk. According to Statista, over the past 100 years, the price of gold has risen $1371.92 per troy ounce — proving itself to be a smart asset even in times of economic turmoil.
If you don't have much experience in investing, gold is often an excellent first venture. Because it's in limited supply, gold tends to be a safer bet than the volatility of the stock market. Even when a currency loses its value, gold often retains its value. In fact, many businesses, such as banks and exchange-traded funds, invest in gold.
Although gold can be a good investment vehicle, it's not entirely without risk. As with any investment decision, it's important that you educate yourself about your options before making any significant changes to your portfolio. If you're thinking about investing in gold, here are some things you should know as an investor.
How Is Gold Used?
As you could have guessed, the jewelry industry accounts for the majority of gold demand. In fact, around 50% of the gold mined is used in the jewelry industry. From engagement rings to gold chains, humans have utilized precious metals to adorn themselves for millennia.
As well as the jewelry industry, around 40% of gold sales come from those who invest in gold. There are many gold products to invest in, whether gold coins, bars, medals, or bullion.
The remainder of the gold demand comes from the medical and tech industry. As an excellent conductor, gold is widely used in electronics. Plus, using gold in electronics dramatically reduces the risk of erosion and tarnishing, increasing longevity. In the medical industry, gold is used in dentistry to fill teeth, and gold injections are also used to treat inflammatory conditions such as rheumatoid arthritis.
How Is The Value Of Gold Determined?
Like any other commodity, Gold prices are primarily based on supply and demand. Whenever the demand is greater than supply, the value of products increase. Because gold is a natural substance that cannot be humanmade, there is a limited supply. This means its value is often higher than other types of commodities. If you'd like to track the value of gold, you can head to the World Gold Council website, which has an abundance of data and information.
As evidenced by the historical values of gold relative to stocks and bonds, even during the great recession, gold managed to retain its value. In fact, from 2007 to 2009, the Standard & Poor Stock Index fell by 36%; however, the value of gold increased by 25%. Fortunately, even during times of economic uncertainty, the value of gold is maintained — making it a "safe-haven" investment.
How To Begin Investing In Gold
There are many different ways to invest. Here is a list of the best and easiest ways to invest in gold.
Gold bullion is one of the best gold investment options. You can purchase bullion, coins, or bars, and each has its own advantages and disadvantages.
Gold coin - Purchasing gold coins can be a good investment option, but it's essential to keep in mind that the process of making the coins and the dealer's fees can cut into your investment.
Gold bars - One of the easiest ways to invest in gold is to purchase gold bullion from the U.S. Mint. A significant advantage of doing this is that you will incur no dealer fees. Plus, buying directly from the U.S. Mint gives you peace of mind that you're purchasing authentic gold. One potential downside to purchasing gold bullion is that it can be challenging to store and liquidate — especially at short notice.
Gold certificates are another option for gold investment. However, gold certificates are a little riskier than other options. This is because gold certificates are actually notes issued by a company that owns the gold, rather than the actual gold. The downside of this is that gold certificates are only viable for as long as the business backs them — which is why this option requires a lot of research.
Mutual funds enable you to invest in gold mining operations, rather than just gold itself. There are a number of companies that allow you to invest in precious metal mutual funds, such as Fidelity and Vanguard.
One benefit of opting for this investment option is that the company you invest with has already done the hard work and research for you. This reduces some of the risks involved in investing, as only mines reliably producing gold will feature in your portfolio. It's crucial that you find out precisely what type of precious metals are included in your proposed portfolio before you invest, as some companies opt to hedge their bets by having more than gold.
If you'd like to invest in gold but aren't concerned about holding the tangible asset, exchange-traded funds could be the option for you. This investment route enables you to become a shareholder, where gold is purchased on your behalf by an exchange-traded fund group.
In this investment scenario, you should expect to pay both commission and management fees. One advantage of investing in exchange-traded funds is that your investment remains relatively liquid. In addition, your gold investment is typically spread across various forms, including gold coins, bullion, and even bars. Many reputable companies can help you invest in exchange-traded funds, such as SPDR Gold Shares.
Jewelry is typically not the best gold investment to make. This is because gold jewelry tends not to hold its value as well as other gold options. In addition, the resale value of gold jewelry tends to drop. To be worth anything, gold jewelry must be a minimum of 10karats; however, gold jewelry that is 24karats has much more holding power as it's considered pure gold.
What’s The Best Way To Invest In Gold?
When it comes to investing in gold, there isn't a "one-size-fits-all" option. Each of the gold investment options listed has its own advantages and disadvantages. It's crucial to consider your needs and expectations before deciding which investment vehicle is best for you. Whether you're investing for retirement purposes or to create a passive income, gold can be an excellent choice.