Gold has been used as currency and turned into jewelry for centuries. There are a few things to know before investing in gold. Like any other asset, investing in gold comes with its own risks and benefits.
We’ll also provide tips on protecting your investment to help prepare you for potential recessions and depressions.
The History of Gold as Currency
Gold is one of the oldest forms of currency in the world. It was the only form of money used and accepted by governments and banks for centuries.
Gold was a valuable asset due to its rarity and many practical uses. It wasn’t until the late 1800s that paper money started to replace gold as the primary form of currency.
Even though paper money is now the most common currency, gold still plays a vital role in the economy. Central banks around the world hold reserves of gold, and it is often used in international trade. Gold is also popular among investors, who see it as a safe-haven asset.
Why Should You Invest in Gold?
The longevity of gold’s usage can attest to its viability as an accepted form of payment. Even though paper money is the primary currency source, gold is still accepted worldwide. This ensures gold can outlast any currency changes the world may go through.
Gold can also act as a hedge against inflation. When the prices of goods and services go up, the value of gold typically does as well. With the worry of inflation eroding savings accounts, gold is a good investment.
As well as a hedge against inflation, gold is seen as a safe-haven asset. It holds its value even when other investments are losing money. For example, during the 2008 financial crisis, the price of gold went up while the stock market went down.
Gold Bullion
Gold bullion is one of the most popular ways to invest in gold. Gold bullion refers to bars or coins that are made of pure gold. These bars and coins are bought from precious metals dealers or online retailers.
When you buy gold bullion, it must be kept at home or in a storage facility. If it’s stored at home, gold should always be secured in a safe or lockbox big enough to hold the collection. To ensure your gold bullions are safe, they should be insured in case of a burglary or natural disaster.
Gold Mining Stocks
Another way to invest in gold is through gold mining stocks. When you invest in gold mining stock, you are buying shares of a company that owns a gold mine. The value of the stock will go up and down based on the amount of gold the company produces.
Investing in gold mining stocks is riskier than investing in gold bullion, but it can also be more profitable. Gold mining stocks tend to increase in value when gold prices rise.
However, there are also some drawbacks to investing in gold mining stocks. These companies are subject to all sorts of risks, including changes in the price of gold, operational problems at their mines, and political instability in the countries where they operate. Investing in gold mining stocks can be a high risk but also a high reward investment.
Gold Coins
Gold coins are another popular investment type. Governments and private mints produce pure gold coins.
Gold coins offer a few advantages over other forms of gold investments. First, they are easy to buy and sell. Second, you can often get them for a lower premium than other gold investments.
Some individuals see collecting gold coins simply as a hobby.
Gold ETFs and Mutual Funds
Another way to invest in gold is through exchange-traded funds (ETFs) and mutual funds. These are investment vehicles that allow you to invest in a basket of assets, which can include gold.
Gold ETFs and mutual funds offer a few advantages over other forms of gold investments. Because you are diversified across several different assets, EFTs and mutual funds are less risky than individual stocks. Also, they tend to have lower fees than other types of investments.
However, because the price of gold can go up or down depending on the overall market conditions, gold ETFs and mutual funds can be more volatile than other forms of gold investments.
Gold Futures and Options
Gold futures are contracts that allow you to buy or sell gold at a set price in the future. Options are similar to futures, but they give you the right to buy or sell gold at a fixed price rather than obligating you to do so.
Gold futures and options are well-liked because they can be used to hedge against market risks. This allows them to be used to protect investment portfolios from losses if the price of gold plummets. Gold futures and options can also speculate on the market’s direction, meaning you can make money if gold prices go up or down.
The downside of gold futures and options is that they are complex financial instruments, making them unsuitable for all investors.
Gold Jewelry
One of the longest-running investments is buying gold jewelry. Gold jewelry is usually purchased for its aesthetic value rather than investment potential.
However, it has a few advantages over other forms of gold investments. It’s easy to buy and sell, does not require storage or insurance, and can be used as collateral for loans.
Gold jewelry is subject to the same risks as other gold investments. When gold prices go up or down, you may or may not get your money back if you sell it.
Gold Certificates
Gold certificates are issued by banks and other financial institutions. They represent ownership of a certain amount of gold without physically possessing it.
Just like gold jewelry, gold certificates can be bought and sold easily. They are backed by the full faith and credit of the issuing institution, ensuring You get your money back if the bank files for bankruptcy.
Keep in mind that gold certificates may not be available from all banks.
Gold IRAs
A Gold IRA is an excellent option for investing in gold.
Gold IRAs are tax-deferred, meaning you won’t have to immediately pay taxes on your investment gains. They are also self-directed. You can choose how your money is invested and are not limited to investing in stocks or bonds.
The downside of investing in a gold IRA is that there are limits on how much money you can contribute to your account each year.
Important Tips for Investing in Gold
When you choose your gold investing method, it’s essential to be mindful of the following tips to protect your investment and grow your portfolio.
Always Diversify
When you invest in gold, it’s always important to diversify your investment portfolio. This means you should not put all your eggs in one basket. As a rule of thumb, you should never invest more than 10% of your total investment portfolio in any one asset.
For example, if you have $10,000 to invest, no more than $1,000 should be in gold. This diversification will protect you from significant losses if the price of gold drops suddenly.
Gold Should be Only a Small Part of Your Portfolio
Gold should only make up a small part of most investors’ overall portfolio. The percentage of gold in your portfolio will depend on your investment goals and risk tolerance. If you are retired and rely on your investment portfolio for income, you will likely want a higher percentage of gold in your portfolio than someone still working.
Don’t Get Caught Up in the Hype
When investing in gold, it is important to stay level-headed. The price of gold can be very volatile, and there is always the potential for a bubble. When gold prices go up too fast, they are often followed by a sharp price drop.
Investors who get caught up in the hype of a gold bubble often end up losing a significant amount of money when the bubble finally pops.
Consider Buying Gold ETFs
If you want to invest in gold without worrying about storing or shipping it, you may consider buying gold ETFs. A gold ETF is a type of investment that tracks the price of gold.
The advantage of investing in a gold ETF is that you don’t have to worry about the hassle of storing and shipping gold. The disadvantage is that you will have to pay a small fee to the ETF for managing your investment.
Remember That Gold Stocks Are Different Than Physical Gold
Investors often mistakenly believe that gold stocks are the same as investing in physical gold. However, this is not the case. Gold stocks are shares of companies that mine for gold.
When you invest in gold stocks, you are taking on the company’s risk. If the company goes bankrupt, you could lose all of your investment.
On the other hand, physical gold will always have value because it is a physical asset. Even if a country were to collapse and there was no longer a gold market, you would still be able to trade it for goods and services.
Learn About Gold’s Relationship with the US Dollar
Since gold is priced in US dollars, it is important to understand their relationship. The US dollar and gold have an inverse relationship.
This means that when the US dollar increases in value, gold prices decrease. And when the US dollar goes down in value, gold prices go up.
This relationship exists because investors often use gold as a hedge against inflation. The US dollar usually loses value when inflation is high and gold becomes more expensive. Investors should always be aware of this relationship when making investment decisions.
The Best Time to Invest in Gold Is When Prices Are Low
One of the best times to invest in gold is when its prices are low, allowing you to get more for your money.
Of course, trying to time the market is never a sure thing. However, certain indicators can give you a good idea of when prices might drop.
For example, if the stock market is crashing or there is political instability in a country, gold prices usually go up. These are a few examples of times you might want to consider investing in gold.
Remember That Physical Gold is Taxed as a Collectible
If you invest in physical gold, remember that it will be taxed as a collectible. You will have to pay a higher tax rate on your gains than you would for other investments.
The exact tax rate will depend on your country of residence. In the United States, the tax rate for collectibles is 28%.
Open an Account with Noble Gold Investments
Noble Gold Investments is ready to help you start investing in gold.
We also offer a complimentary Gold IRA kit to help you learn how to invest in gold properly. With our kit, you’ll learn about the benefits of investing in gold and how to open an account to help you get started.
