Common forms of investment include investing in stocks or purchasing real estate. However, one obscure method of investment is investing in gold.
Gold investment is popular because of its everlasting value and sustainability to outlast both natural and human-made disasters’ economic hardships. It can also sustain its value over time. Gold is, therefore, a good alternative if you want to diversify your investment portfolio.
If planned carefully, investing in gold can net you higher returns in the long run. To help you make an informed decision on gold investment, we’ll discuss why it is popular, its modern use, and the pros & cons of gold investment.
WHY IS GOLD POPULAR?
Many ancient civilizations were the first to popularize gold. Jewelry worn by Mesopotamian leaders were forged out of gold. The precious metal was used to decorate the tombs of Egyptian pharaohs. The graves of noblemen of Ancient Greece also produced a variety of products using gold, such as masks, headwears, and utensils.
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Eventually, gold was used as a medium of exchange for transactions. It facilitated trade and economic activity because of its appeal as a ‘noble metal’. When countries shifted to paper currency, gold’s impact was not lost – the gold standard was used to determine the value of paper money. Rich gold reserves meant a much more valuable legal tender.
GOLD IN THE MODERN ERA
Throughout time, gold has maintained its status as a precious material. Although countries stopped using the gold standard to measure their country’s currency power, it still maintained its luxurious status.
Plenty of industries continue to create a demand for gold. A few of these industries include the following:
- The jewelry industry, which creates the highest demand for gold through the creation of necklaces and brooches.
- The electronics industry, which uses gold as a conductor for gadgets and appliances
- The medical sector, which experiments with gold to treat various diseases such as cancers and tumors
PROS AND CONS OF INVESTING IN GOLD
PRO: GOLD IS A HEDGE AGAINST AN ECONOMIC CRISIS
One of the main advantages of gold investment is that it shields you from an economic crisis’s adverse effects. Many investors put their money in gold because it is a hedge against inflation.
When there is inflation, fiat currency starts to depreciate value. Gold, which is priced in those currencies, also increases in price alongside other goods. Simply put, where the dollar-value of paper money falls, gold becomes more valuable as its dollar per ounce increases. This effectively shields a gold investor from any adverse effects an economic crisis may have.
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Likewise, where paper currency loses its value altogether, economies may shift to using the gold standard once more. Gold may even see a resurgence as a prime currency. For this reason, many gold investments are vulture-like: investors are constantly waiting for the next market collapse so they can make a profit.
PRO: THERE’S PLENTY OF OPTIONS FOR GOLD INVESTMENT
There are plenty of ways you can invest in gold. Be sure to choose one that’s in tune with your financial goals. Some of the notable options are the following:
- Gold Bars (or bullion) – This includes physically owning bars or bullion. Purchasing these from sellers usually incur commission fees or premiums.
- Jewelry – Those who wear and collect jewelry are already investing in gold. Some jewelry has a history behind it, which adds to its overall value.
- Exchange-traded Funds (ETFs) – These operate similarly to stocks. It allows you to get into a gold investment without physical ownership, at the cost of commission and brokerage fees.
- Stocks – This option is usually suited for traditional investors who are already knowledgeable of the stock market. Plenty of gold mining companies have stocks that are readily available for the public.
PRO: GOLD’S PRICE HAS A GOOD HISTORICAL TREND
Historical analysis by Macrotrends.net shows an upward trend of the price-per-ounce of gold. As of September 2020, it reached a total amount of $1920 per ounce in which it has already exceeded Morgan Stanley’s prediction of $1900 per ounce. Other financial institutions forecast that the price may go as high as $3000 by the end of 2021.
CON: GOLD INVESTMENT REQUIRES ADDITIONAL COSTS AND PLENTY OF SAFEGUARDS
As stated earlier, some gold investment options charge commission fees, which can be quite hefty. This is on top of other regulatory fees such as maintenance fees, making it hard for new investors to get into the field. Should you opt to own gold via bullion or jewelry, safeguards must be in place to protect your investment. It may come in the form of insurance policies covering your gold. There is also an added inconvenience of finding proper storage.
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Additionally, reportorial requirements for gold investment can be quite hefty. Government agencies highly regulate the sale of physical gold. Be prepared to write up more documents than usual for transactions involving gold.
CON: CAPITAL GAINS TAX IS IMPOSED ON MOST GOLD TRANSACTIONS
Precious metals, such as gold and silver, are considered capital assets. They can be subject to capital gains tax. In some countries, the rate is very high, enough to discourage interested investors. In the US, it can go as high as 28 percent.
CON: GOLD INVESTMENT DOES NOT PRODUCE CONSTANT CASHFLOW
One of the biggest downsides to gold investment is the lack of passive income. Gold bars and jewelry do not produce dividends. You will only profit if you decide to sell them.
For some, this can make it hard to turn a profit. Gold investment requires patience. Making long term investments is the best strategy, as significant price changes only occur after long periods. Don’t commit to investing in gold when you’re not willing to wait it out.
Be sure to consider these pros and cons before investing in gold. The multitude of options for gold investment will allow you to pick what suits your financial goals. However, gold investment’s main appeal remains: it helps investors minimize their losses, especially when markets are volatile and economies are on a tightrope.
At the end of the day, it is one of the best options for investors who are looking to diversify their investments.