How do I make money with a gold investment? Are there some industry best practices to follow as one acquires gold to invest for their retirement years or for other purposes? Is it even a good idea to think about investing in gold? Such are some common questions that those who’re considering investing in gold usually ask themselves. If you’re one such person and have landed on this article while figuring out how to profit from the yellow metal, then you’re in luck because I will share some information that will set you on the right path. If this sounds interesting to you, read on to find out more on how to grow your wealth using a gold investment.
Is buying gold a good investment?
Before we even get to answering the question of how you can make money with a gold investment (if that is even possible), let us first think about the viability of gold as an asset worth possessing. When people ask me whether purchasing gold is a good investment, my first response is usually, “Depends on what your financial goals are, and how willing you are to ensure that you survive the economic downturns.”
You may have already come across some critics of precious metal investments, who claim that gold does not offer any utility as an investment. Such claims have, however, been countered by the proponents for more stable assets, who have clearly demonstrated that gold is one of the very few assets that have been found to increase in value during times when the global economy is taking a nosedive.
When times are tough, as you will come to realize, many people rush for gold, since it has been established to be excellent at the preservation of wealth. This precious metal has been valuable for thousands of years, and not a single economic crisis has managed to diminish its value to a worthless asset. Even in periods of high inflation, gold is the one asset that has stood the test of time.
The one thing you should know about gold, as a physical precious metal, is that its value grows very steadily. Unlike other assets that may double, triple, or even quadruple in value within a couple of months, gold has a gradual growth factor to it and is therefore viewed as a great long-term investment. If you want to make a lot of money in the short-term horizon, gold may not necessarily be your go-to asset, but there is a high likelihood that it will impress you over a long-term horizon.
How can one make money with gold?
You can make money investing in physical gold, or paper assets that are linked to gold. The latter has a higher growth potential than physical gold, but they also come with more significant risks. Let’s take a look at some of the possible ways through which you can make gold.
Purchasing gold bullions/coins – physical gold
This is the most straightforward way to invest in gold. Investors who want to hedge their portfolios against market forces usually allocate about 5% to 15% of their funds to physical gold, as they wait for its value to increase. They then sell the gold at a profit whenever the need to cash out this shiny metal occurs.
In the 1990s, the price of an ounce of gold was roughly $300. As of September 2021, the price of the same unit of gold is $1790. Depending on how well you had done your allocation a few years back, your patience would have paid off big time.
The one thing you should know about purchasing physical gold is that it has its unique risks. Gold is a highly sought-after precious metal, due to its rarity, hence is likely to make you a target for thieves. The solution to this problem is investing in gold through a gold IRA. With this special IRA, you are required by the IRS to store your gold in a secure and approved depository (a transaction that is overseen by an appointed custodian).
Investing in gold stocks
If you’re not very enthusiastic about purchasing physical metal, you can opt for gold mining stocks. This involves buying shares of companies that you’ve established through research, have the potential to increase in value in the future.
The advantage of purchasing gold stocks is that if the price of physical gold is on the decline, and the company from which you purchased the shares is doing great, then it is highly likely that you’ll remain profitable.
Unfortunately, if you own mining stocks and the global economy starts collapsing, then you’re likely to lose your investment capital. If you’re following closely, then you can see that this would be quite sad, owing to the fact that the value of gold increases whenever the rest of the global economy is collapsing.
In addition to that, a mining company’s financials, the quality of their management team, as well as their long-term production prospects can significantly affect the price of their shares- this can happen in a matter of hours or even days.
Gold Exchange Traded Fund (ETFs)
Some investors also choose to invest in gold ETFs to avoid all the uncertainty that emanates from investing in one company’s shares.
ETFs are essentially pools of money collected from investors and poured into a variety of gold investments. They are usually traded like stocks. Some popular gold ETs include GLD, GDX, and GDXJ. The one major downside of these assets is that you have to be prepared to lose a significant portion of your investment’s value, to cater to that fund’s expense ratio. For instance, with the largest gold ETF known as SPDR Gold Shares, investors are usually charged 0.40% of their investment value annually.
One of the main selling points of ETFs is that they are heavily diversified. They, unfortunately, are not immune to the same volatility that crashes stock markets. If the market crashes, then the value of your investment could end up declining significantly.
As you can see, there are several ways through which you can profit from gold investments, with each having its pros and cons. Different people will advise you to consider one approach over the other, but it is ultimately up to you to decide what you want, based on your money-making goals and objectives.
If you’re trying to make money for your retirement years, however, my recommendation would be that you have a look at what the recommended gold IRA solutions below have to offer.
That will be all for this article in which we have answered the question “How do I make money with a gold investment”. I hope you enjoyed this article, and that you now have an idea of how to get started in this line of investments. Let me know if you have any questions about this article- drop them in the comments section so that I can respond to them ASAP.
I wish you well,
Eric, Investor and Team Member at Gold Retired!