If you paid attention in your high school economics class, you probably learned about gold as an investment. Compared to paper currency, which derives its value from a specific government, gold has inherent value as a precious metal. Does that make gold a good investment?
That depends. Gold is commonly used to make jewellery because of its favourable colour and lustre. According to the World Gold Council, jewellery made up about half of the worldwide gold demand in 2019. Aside from its appearance, it’s also a malleable metal that doesn’t tarnish or corrode, and it conducts electricity, which is why it’s used to make many electronics.
So with all of this inherent value, is gold a good investment? Unfortunately, the answer to that question isn’t so simple. There are a handful of factors that come into play when determining the investment quality of a particular currency or resource. If you’re considering investing in gold, here are the important factors you’ll want to consider.
The amount of gold on our planet is finite. Unlike paper money, it can’t be printed by a government agency, so demand can fluctuate frequently and change the market value reasonably quickly.
Let’s compare this idea to a more traditional stock like Disney. Imagine Disney released exactly 100,000 shares to the public (no more, no less). The notion of limited supply makes the stock more valuable. People would flock to invest because owning 20,000 shares is more valuable if there are only 100,000 in total. If the stock were infinite, the value of owning 20,000 could change.
For this reason, gold will always retain value even as markets fluctuate.
Gold follows the same general principle; it should consistently be a good investment because it’s a limited commodity that’s always in demand. People will always want to purchase gold to produce gold and electronics, and a person who owns plenty of gold has stable wealth.
Okay, so gold seems like a good investment, right? But what about when an economy takes a downturn?
Instinctively people batten down the financial hatches during times of economic strain. However, this tight-purse instinct backfires, and statistics show that investing during economic hardships is a savvy move.
Why? Because gold has inherent value, that makes it worthwhile when other forms of currency fail. For this reason, gold typically does better during times of economic hardship, recession, and depression. Regardless of a country’s inflation rates rising, gold holds a value of its own. Economists refer to this phenomenon as an “inflation hedge.”
Let’s look at the most recent economic crisis to see how gold stacks up.
During the COVID-19 lockdowns, the price of gold rose exponentially, hitting a 28% increase between January and September. While national economies struggled to handle the global pandemic, people turned to gold as a more secure means of currency. As borders reopened and normalcy returned, the price of gold plateaued at the beginning of 2021.
If you bought gold in the middle of the pandemic, that was a smart move. As with all investments, you should never invest what you aren’t willing to lose. That said, investments are a risk, and boldness can pay off during economic crises.
So, if you’ve decided you’re ready to invest in gold, let’s talk about your best options.
There are a few different ways to invest in gold. In general, you have three options: buying gold bullion, bars, coins, or jewellery, buying shares of a mutual fund or exchange-traded fund (ETF), or trading futures in the commodities market. Let’s break each of those down a little further.
Purchasing gold jewellery is another way of investing in gold. A necklace or watch containing high-purity gold (18k, 24k) maintains its value over time and may hold additional sentimental value. Many families pass gold jewellery down from generation to generation, adding value to the initial gold investment and therefore surpassing the monetary value.
Besides jewellery, numismatic coins offer collector’s value. If you snag a rare collector’s coin you could end up accruing historic value that exceeds a solid gold bullion bar, despite containing only a fraction of the gold.
That said, a fool-proof investment with low risk is to buy gold bars, which have 99.99 per cent 24-carat gold.
If you don’t want to hold any physical gold, you have other options for investing in gold.
ETFs replicate the movement of gold as a commodity. Trading shares of an ETF is a much more liquid way of investing in gold that offers appreciation potential, unlike purchasing gold bullion.
However, this form of investment doesn’t get you any physical gold. So, the inherent value we discussed earlier isn’t available to you if the stock value goes down. In this way, ETF shares are a much more risky option.
Think of this as a lower-risk way of investing in ETFs. You have an option to buy on gold futures or a gold ETF at a specific price for a certain amount of time. The risk associated with your investment is much lower, which is why more experienced investors usually go with this option.
Now that you know your options, what else should you consider before investing in gold?
Gold jewellery is an excellent long-term investment because you derive personal value from it by wearing it. This value may not be directly monetary – you probably aren’t getting paid to wear it – but it can benefit you by bringing you joy, making you appear more affluent in business, and complementing your appearance.
Another virtue of gold jewellery is that it can be melted down, so you can always sell high-quality gold in times of economic hardship. The material can be sold and repurposed as new jewellery or as gold alone. Then, you can use the profits to invest in more gold to accrue more wealth long-term.
If you’re able to purchase gold at a low cost, there’s a good chance you’ll make some money off of it in the future. Keep an eye on economic trends and try selling when the value of a nation’s currency drops or when a country undergoes financial fallout.
Even if you don’t sell, owning gold is a wise investment that will hold its value independently. Just make sure you understand the difference between bullion bars and sovereign coins before investing in gold as a physical asset.
We’ve covered the crucial details of investing in gold, but is right now a good time? The economic hardship that brought about a rise in gold prices is coming to an end, making it a great time to invest in gold.
Whether you’re interested in gold as a universal currency or you’re looking for a way to combine sentimental value with long-term investment, investing in gold is never a bad idea. Ready to build wealth now?
Invest in gold from Treasures Auctions today!
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