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Investing in gold? 4 things to know first

If you’re looking for a hedge against inflation, it might make sense to invest a portion of your portfolio in gold.

Leonello Calvetti

Are recent market developments and inflation trends driving you to analyze your investment portfolio? In such times, many people consider investing in gold to reduce their risk. But that a good idea? Or should you consider other investment options instead? Gold can be beneficial to different types of people but, like all investments, it helps to understand the nuances before getting started. In this article, we’ll break down the ins and outs of investing in gold so you can decide if it’s right for you.

If you’re thinking about investing in gold, get started by requesting a free information kit to learn more.

4 things to know before investing in gold

Investing in gold can be confusing. Here are four main points to know first.

1. Gold can act as a hedge against inflation

There’s a reason gold comes up in more conversation when inflation is high.

Ohan Kayikchyan Ph.D., CFP explained that gold has historically had an inverse relationship with the U.S. dollar, saying, “Gold tends to rise when the dollar weakens. As a result, many investors prefer to store their funds in gold, especially during stressful economic times. “

“In the recent volatile period for the stock market, gold has once again become a good option for maintaining value and hedging against higher inflation,” he added.

2. There are better times to invest than others

You may wonder about Best time to invest in gold. As it turns out, some times are better than others.

Gold prices fluctuate based on factors such as supply and demand, interest rates, inflation, currency values ​​and geopolitical events.

For example, lowest price Gold per troy ounce over the past five years was $1,176 in August 2018. The highest price in August 2020 was $2,067. Although the price of gold rose relatively steadily from 2018 to 2020, it has fluctuated since 2020 and has yet to return to its peak value.

By watching the trend and buying when the price is low, you can make more profit than buying when the price is high.

Explore your gold investment options online to see if now is the right time to get started

3. There are multiple ways to invest in gold

Investing in gold can be more complicated than many first assume. you can buy gold Invest in coins or gold bars, exchange funded ETFs, Open a gold IRA and more

Gold coins and bars

If you choose gold coins or bars, you need to consider factors such as weight, portability, and quality. “Gold coins are easier to sell and/or trade than gold bars because of their smaller size and recognized weight,” said Dan Seder, CFA, CMT, CFP, and managing director of Blue Chip Partners.

He adds, “Before buying real gold from a retailer, it is essential to consider the quality of gold being sold, the dealer’s reputation and the cost of storage. Buying gold online can be convenient, but due diligence is required to ensure you are buying from a reputable dealer. Buying from.”

Gold ETFs, Mutual Funds and Futures

You can opt for exchange-traded funds (ETFs). “Some ETFs and mutual funds mimic the movement of gold prices and are considered an option for many investors, but in many cases, they are taxed as collectibles. So there is no long-term capital-gains tax benefit that stocks can potentially get,” Kaikchian explains. do

“Gold futures are also popular among precious metals investors, but this is a speculative approach to investing and not a long-term strategy. Many invest in gold mining companies, just for the diversification involved in precious metals,” Kaikchian added.

Gold IRA

Gold IRA Specialized retirement accounts that allow you to hold physical gold and precious metals instead of paper assets. You can often choose a traditional, Roth, or SEP account type and contribution and distribution limits will apply.

4. Historical context can increase value

Another interesting aspect of investing in gold is that historical context can increase its value.

“Some coins are worth 100x, even 1000x, multiples of their metal melt value,” Everything But the House appraiser and senior content editor Anton A. Bogdanov explains. “Numathologists (hobby coin collectors and researchers) determine value by year, mintmark, condition, scarcity, among other factors. This is true not only of coins, but of bars as well.”

He adds, “Ingots bearing collectible assayers’ and refiners’ marks have fetched substantial premiums at auction. Hence, investors in gold coins and bars can hedge their bets with items that carry historical context.”

To gain an advantage on this front, however, you need to do your homework and understand when you have a coin or bar with increased value.

You can learn more about the benefits of investing in gold by requesting a free information kit now!

Other considerations

While gold has several advantages, it also comes with a few potential drawbacks.

Non-productive assets

Gold is an unproductive asset which means it does not generate income or dividends like productive assets like stocks and bonds. “The amount of gold you keep in your bank’s safe deposit box stays the same, no matter how much time passes,” Kaikchian explains. “It will rarely beat stocks in terms of their performance.”

value volatility

The value of gold is also subject to sudden fluctuations. “The price of gold is affected by many factors and does not always have a positive trend. At times, gold investors can lose money,” Kaikchian said.

For example, in March 2022, gold prices rose after the Russian invasion of Ukraine. However, in the months that followed, the Federal Reserve continued to raise interest rates, and the increase sent the dollar to its highest value in two decades. The result? The price of gold has fallen From $2,017 per troy ounce in March 2022 to $1,631 in October of the same year.

Storage and insurance costs

With physical gold comes the risk of physical harm or loss. Prevention requires an investment in safe storage and insurance. This may involve custodial and storage fees as well as insurance premiums.

“Insurance is important when buying gold because it can protect your investment in case of loss or damage. However, investors should consider the cost of insurance and how it will affect their overall investment,” Seder said.

Should you invest in gold?

As with most types of investment, gold has advantages and disadvantages. It can help diversify your portfolio and hedge against inflation, but it’s also vulnerable to sudden fluctuations and doesn’t offer the growth potential of productive assets like stocks. “The rule of thumb is to allocate a maximum of 10% of your overall portfolio to gold,” says Kayikchan.

However, you need to weigh the pros and cons to decide which one is right for you. “Before committing to a large purchase, talk to your fiduciary, financial advisor or legal counsel. These decisions should not be made in a vacuum,” advises Bogdanov.

Learn more about your gold investment options by requesting a free information kit from Goldco today.

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