The tears of the sun, the blood of Greek gods, a symbol of power, and one of the oldest forms of money. Gold has tantalized mankind for millennia, and it still holds value in every nation on Earth.
However, is it a good personal investment to buy gold? If so, how can it be purchased? Finally, are there other ways to go about investing in gold? Let’s take a look at the value of gold as an investment.
Is Gold a Useful Investment?
Yes, gold has steadily increased in value throughout the centuries. However, it’s mostly useful as a very long-term investment. A short-term investment in gold can be highly risky and speculative, but over many years it can give a steady return.
As of writing, gold has increased in value by 600% in the past 20 years against the US Dollar. That means that a purchase of gold in 2001 would yield seven times the initial investment when sold. However, in these 20 years, there have been many price fluctuations.
For many years, the currency itself was measured by the amount of gold it could be traded for. The original paper currencies of the United States were paper bank notes that could be exchanged for fixed amounts of gold at the banks that issued them. However, over time, the US moved away from the gold standard and became a fiat currency. Many other nations followed suit. A fiat currency has the value that is guaranteed by the government as legal tender, as opposed to a fixed amount of gold value.
Because of this financial policy change, the value of gold in US Dollars has since undergone extreme price fluctuations, also known as high volatility. While a gold investment can still yield good returns over time, the price is not nearly as stable as it used to be.
How Can I Invest in Gold?
There are several ways to invest in gold, and a gold investment can also be a more typical investment in financial markets. The most obvious method is to simply buy physical gold, but there are many other options available.
Gold Bars and Bullion
The easiest way to invest in gold is to buy gold bars or gold bullion. Bars can be prohibitively expensive, but bullion, or gold coins, can easily be purchased online or at local coin shops.
These are priced based on the price per ounce of gold, otherwise known as the spot price. This is the main price for measuring gold, and the most common gold coins weigh exactly one ounce.
The coins are specially minted depending on the nation that sources the gold itself, so they will cost a bit more than the exact spot price of gold.
Gold Commodity Contracts
A less direct way to trade physical gold is to trade derivatives based on the value of gold. Instead of buying gold itself, you can buy a gold futures contract that represents physical ownership of a fixed amount of gold.
These contracts can be bought and sold instantly through electronic systems. However, due to the volatility of gold prices, this can be very risky and difficult to trade correctly. This is the standard method for trading market commodities in general.
The stock market, or the equity market, allows anyone to buy a piece of a public company. These pieces are called shares, and many of the companies on the stock market are related to the gold industry.
Gold stocks can provide great exposure to the value of gold, but purchasing one stock at a time can be a risky approach. It’s important to spread your investments as a beginner across several assets in order to reduce risks. This is a process called diversification.
Gold Equity Funds
If you’d like to invest in gold stocks without picking your own individual companies, an equity fund is a great option. These are funds that are specifically focused on purchasing a careful portfolio of various gold stocks, and you can own a piece of the fund by purchasing shares.
When it comes to equity markets, funds offer a very convenient way to invest in a professionally managed portfolio of stocks in the general stock market or in a specific industry.
Gold equity funds are offered in the form of exchange-traded funds, mutual funds, and closed-end funds. For exposure to the general stock market, index funds offer a convenient way to put your money in the overall value of public equity.
Where Can I Buy Physical Gold?
Physical gold can easily be purchased at retail bullion stores and online bullion dealers. These companies offer a wide variety of gold bullion and bars from nations across the world. They also offer collectible coins and bullion in other precious metals such as silver.
Where Can I Invest in Gold Equity?
Anyone can purchase public shares in stocks and funds through an online retail broker. By registering an investment account with a retail broker, an investor can purchase individual stocks, commodity futures, and shares in equity funds.
This is the most convenient method of investing in gold, as an investor can buy and sell shares and derivatives instantly through an online interface. However, it does not have the same physical qualities as buying bullion or bars.
How Does Gold Compare to Other Investments?
When comparing physical gold to equity markets, equity markets are far more profitable by a very wide margin. However, physical gold is still valuable as a long-term store of value.
If you are going to invest in physical gold, it’s mostly useful as a secondary long-term investment when compared to investing in stocks and funds. An equity investment will give you returns that are far more stable and lucrative, especially if investing in index funds.
However, gold and other precious metals should not be completely discounted as valuable investments. After all, central banks across the world invest in gold bars and trade them in order to diversify their reserves and manage their national currencies.
For the patient investor with means, physical gold can yield returns over a long period of time.
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