Since the beginning of time, man has associated gold with power and wealth. Its beauty is transcended only by its value and to this day, it still holds the place in society as being associated with the rich. So, it is all too easy to understand why many investors are interested in pooling some of their assets into this precious metal.
If you are interested in investing in gold as part of diversifying your portfolio, you may believe that it will simply increase in value, will stand against inflation and deflation while also earning you a great deal of money. But, as with any investment, this is not necessarily true and just like other investments, gold is prone to fluctuating.
Also, there is a wealth of other things to consider before investing in any precious metal, such as your investment goals, which type of gold you want to invest in and, most importantly, the ability to liquidate if desired.
And so, here are some of the things to be aware of when looking to invest in gold.
Gold stocks vs physical gold
Many investors look to invest their assets into gold stocks as opposed to physical gold.
What’s the difference? Well, when you invest in gold stocks, you may be investing in a company that handles gold, such as a gold mining company or even a company that sells physical gold to investors.
If you want to invest in physical gold, you have the choice of either gold bullion or gold coins, which will be explored more later in the article. However, when you purchase physical gold, you may have to pay a premium for it and, alongside any associated storage costs, this can lower your returns.
Certificates are a must
When you are buying gold that will be kept in a storage facility, it is unlikely that you will ever see or physically hold the gold.
However, any reputable gold seller will provide you with a certificate, which shows how much gold you own, when it was purchased and in the case of gold bullion, will display the individual barcodes for each piece.
If you have invested in gold coins, the number and weight of the coins will be displayed on the certificate. If at any point in the future you want to sell or trade your gold, you will need to provide your certificate as proof of ownership. Remember, if a company alleges that you have purchased gold but does not provide you with a certificate of authenticity, it may be a scam.
The image of gold bars being stored in a wall safe behind a painting is a bit of a stereotype; today, many sellers of gold bars, coins and bullion also offer investors storage for their gold.
Of course, if you have a strong wall safe, great, but many investors prefer to secure their gold at either a bank or a designated holding facility that is linked with the seller.
Like the certificate, if a gold company offers you a storage space, you should receive a letter stating the physical location of your gold and a contact number for the facility.
Bullion or coins?
If you want to invest in physical gold, bullion or coins are both suitable choices for a long-term investment.
Provided that you have a certificate from the seller, both gold bullion and coins are easy to sell on or to trade, but there has been some discrepancy about the value of coins over bullion. Economic forecasts have shown that, historically, when the market is fluctuating, gold coins are a better investment than bullion. Gold coins are also less volatile than gold bullion and so, they tend to hold their value for longer periods.
But, in relation to selling or trading, gold bullion offers higher returns than gold coins, as its value increases more dramatically when the market is doing well, so it can earn you more money if you want to sell it on. So, when choosing which one to purchase, it is important to have a clear strategy.
It may not move
Gold has long been renowned as a way chosen by many investors to try and protect their assets against risk and inflation.
Also, as gold tends to increase in value alongside the pound or the dollar, it can seem like a great way to make money when the stock market is doing well.
However, it is often a surprise to investors when they find that their gold investments do not increase with the stock market and that the value can actually decrease as markets crash. Although gold bullion and coins are regulated, the value is dependent on perceived value and so, it can be worth more or less depending on the economic climate.
This article is intended strictly as an educational introduction to gold investments and some of the information surrounding investing in it. It is not intended to be an expert guide, predict stocks, investment values or to influence the readers decision to invest in gold or any other investments. All investments are made at the readers own risk, writers, owners and affiliates accept no responsibilities for losses incurred through investing.
Alan Rosca is a securities lawyer with Goldman Scarlato & Penny, P.C. and an adjunct professor of securities regulation at Cleveland-Marshall College of Law in Cleveland, Ohio.