When the stock market is shaky, many investors are looking for alternatives. Gold is an option and in this post you will learn all about investing in gold.
So, how do you invest in gold?
The classic image of a gold investment is a few neatly lined gold bars in a bank vault, but today there are financial instruments that make the gold trade more accessible to small savers. One of the easiest ways to invest in gold is through the exchange-traded financial instruments with exposure to the gold sector.
These can be found on several different platforms.
Why should you invest in gold?
Gold investments often arouse strong feelings among investors both in the camp who are for and those who are against.
Some people think that it is an unproductive asset that involves speculation and others make the assessment that it is a good way to diversify away risk and a good way to protect themselves from inflation.
What is clear is that gold is a precious metal that has been sought after for thousands of years.
Gold has no major industrial value, but is traded at over 80% to be used as investments and jewelry. The precious metal has the characteristic of being durable, unusual and malleable.
A gold purchase provides a diversification, as the supply tends to go well in the event of financial uncertainty and crises when shares are at their worst.
The gold price thus does not correlate to a high degree with the share prices.
When a currency loses its purchasing power through inflation, the price of gold tends to increase, as do other prices in the economy. Thus, gold is a good tool for coping with periods of inflation. Many gold investors are negative about Riksbank’s policies.
Increased demand and limited supply
The improved economic position of developing economies has led to increased demand among them, while the supply of gold is limited and new production is declining.
Invest money in gold when trust disappears
When confidence in governments and banks declines, capital tends to flow into physical gold and securities with gold as the underlying asset.
During the financial crisis when the stock markets crashed, the gold price rushed at the same time. Even during the Corona crisis, the price of gold has risen.
The problem is that the bank vaults are disappearing and it is unsafe to store gold bars at home in the safe.
Therefore, many investors choose to invest in international corporations such as Barrick Gold or Newmont Goldcorp. If you do not like corporate risk and currency risk, remember other ways such as ETFs or gold funds.
An exchange-traded gold fund is SPDR Gold Shares.
Below are several options for you who want to invest in gold.
But gold does not give growth…
The most common criticism of gold as an investment is that it has no growth. You can lock a bar of gold in a vault and wait 30 years.
Nothing will have happened, neither more nor less of the asset remains. A stock has at least growth potential, ie the hope of creating something more over time.
That criticism is also the strength that gold possesses. That is, the value-preserving ability.
As the physical gold remains stable, many investors through the ages have sought the gold to secure their capital when it is generally unstable in the market.
Should you buy physical gold or invest through CFDs and certificates?
There is no right or wrong here. Personally, I would probably have chosen to invest in gold through financial instruments as this is the most practical.
You then avoid transport, large spreads when trading and the storage problem.
Another advantage is that the financial contracts are more liquid.
Advantages and disadvantages of trading CFDs and certificates
Investing in physical gold involves some practical concerns. You can also invest gold in financial products within your Roth IRA or endowment insurance, with the same tax rules as for other holdings in these forms of savings.
The advantages are that you can invest in the financial instruments via your Roth IRA with the usual tax rules on standard tax. You can then buy and sell however you want within Roth IRA without complicated tax management.
You can also trade the financial instruments for small fees while physical gold is relatively expensive.
Storing physical gold will not be a problem if you invest in financial instruments, which saves both time and money.
However, you will not have access to the physical gold, which can be positive in an extremely negative financial scenario.
Advantages and disadvantages of buying physical gold
When you have the physical gold, you have the underlying asset at your disposal.
Thus, you hold a timeless value preserver in your physical possession. You do not need to involve any additional party in the ownership.
Physical gold traders charge a fairly large fee in the form of the spread they have between the purchase price and the selling price.
This will negatively affect your return when you buy and sell your physical gold.
In addition, you must resolve the issue of storage if you buy physical gold, with preparations and costs for safes or the like.
Top 5 Ways on How to Invest In Gold
1. Gold ETFs
Not everyone feels comfortable storing gold bars or gold jewelry in their own home and then there is a good alternative to owning physical gold.
The solution comes in the form of gold ETFs, which can be described as a stock / fund that is traded on a stock exchange.
By trading an Exchange Traded Fund, you become a partner in the company’s gold.
Exchange traded funds / shares are a more sensible way to invest capital and you avoid the worry that your entire portfolio is at home.
An Exchange Traded Fund both falls and rises as the price of gold does so, but I advise against investing all ETFs in physical gold.
It is recommended that you mix and spread your risks, e.g. by choosing an exchange-traded fund that focuses on several companies at the same time.
2. Gold certificate
Gold certificates are something that is well suited for those looking for short-term investment methods.
By that I mean that those who choose a gold certificate should be prepared to stick to it for a very short period, preferably shorter than a day.
The reason for this is that the leverage that is put on the gold certificate is put on a daily basis.
Trading a gold certificate with leverage means that you can increase your return very much. The higher the leverage of your certificate, the more returns you will get if gold prices rise.
However, the lever also works in the opposite direction, which means that your investment can be lost if prices fall.
What does it really mean to trade gold with a gold certificate? Simply explained, it can be said that a gold certificate is a product that you can trade on the stock exchange.
Certificates are available for, among other things, index, shares and currencies, but also for gold in particular.
The gold certificate gives you the opportunity to get a clearer insight into the declines and rises that the gold price has and thus be able to speculate better.
3. Gold futures
For those who want, it is quite possible to invest in so-called gold futures when you want to buy gold. In short, you can say that it is the obligation and the right you have to a certain asset, which in this case can be gold.
The most common is that trading takes place on a marketplace, but it can also take place on the stock exchange or with the help of auction procedures.
Futures are also referred to as futures contracts.
The agreement is not a security, but is counted as a financial instrument. The agreement refers to a purchase or sale of gold that will take place in the future.
The agreement will include the time of purchase and the price.
When the contract-specified day has arrived, a decision needs to be made. Either the buyer can accept the delivery or a cash settlement can take place.
In the latter, the stated price is compared with the market price.
4. Gold jewelry and gold watches
Gold jewelry is fun to own and you can borrow your physical necklace or gold watch at the pawn shop. If the gold price goes up, the value / price of your gold watch also goes up.
Some watches that many experts believe will increase in value in the future are the Rolex Submariner, Tudor Heritage, Omega Seamaster 300 and Tag Heuer Carrera.
In the financial industry, many are striving for a watch from the Patek Philippe brand. Such a watch can cost anywhere from $20,000 to $1,5 million.
Benefits of investing in gold jewelry
- You can wear gold jewelry and show them off instead of the gold being locked all the time.
- It is fun to pass on gold jewelry to your children.
- You can pledge gold jewelry such as rings, bracelets, necklaces and watches in emergencies.
Disadvantages of owning gold jewelry
- Showing off your gold jewelry can increase the risk of being robbed.
- You pay more than the value of the gold because jewelry is a craft.
- It is more difficult to value gold jewelry compared to gold bars.
5. The price of gold is rising / Gold Funds
The price of gold has risen sharply since the Corona pandemic, but had a rising trend even before that.
Still back to 2015, I have seen a rising trend in the gold price. The reason for this has been an uncertain political situation between countries such as the USA, Russia and China.
Then we have had central banks that have increased the money supply, which means that many question the value of the currencies.
The gold price is measured in dollars per ounce and is up about 90% since 2015.
I have seen that gold funds have been among the winners for several years because the gold companies that prospect for gold have had a good margin on their gold sales.
Even the world’s best investor Warren Buffett has bought gold for roughly $1 billion in Barrick Gold, which is one of the world’s largest companies with gold mines.
Pro Tip: Invest in silver
Silver is another precious metal that has become popular to invest in and there are many good reasons why. Among other things, silver is always real money, even if it is not seen as a currency, and silver is also a very cheap asset.
Another advantage is that silver has never been reset.
This means that you do not have to worry about any risk if you own physical silver, which means that the form of investment differs greatly from many other alternatives where high risk is a factor.
Investing in silver is also great for you who may need to meet smaller financial needs.
It’s not fun to have to sell a whole ounce of gold for a small financial expense!