How do you make money investing in gold? Is it possible for everyone or is it a niche that should be left to the super-wealthy people in the world? Join me in today’s article in which I will be taking you through a couple of basics that you need to know with regards to gold investments and how you can make some money for future spending.
Whenever the stock market starts getting turbulent, people take to other investments, in a bid to ensure that they do not lose their investment capital. One popular alternative has been gold. For thousands of years, gold has been a popular asset and has also been used as a medium of exchange.
Nowadays, you have many more investment options, including real estate and cryptocurrencies, but you only want to invest in gold, then you should read on to find out what you can expect to find when you get started.
Is gold a good investment?
This largely depends on who you ask. There are, for instance, those who argue that commodities such as gold and silver are quite risky and that they do not offer sufficient utility as long-term investments, while others state that they can offer the much-needed diversification for a long-term investment portfolio.
The truth, however, is that people tend to rush to gold in tough times. This precious metal has been known to be valuable for thousands of years, and it tends to hold up quite well even in times in which stocks are performing poorly and when inflation is high.
Warren Buffet, a renowned investor has for a long time been ambivalent about gold. Prior to 2020, no one would have imagined that Buffet would have had anything to do with gold. In 2020, however, he purchased shares in Barrick Gold (one of the best gold mining companies in the world), through his investment firm, Berkshire Hathaway. He, however, sold all of them later on. Now, I’m not sure what made him try gold investments, but as you will come to learn later on in this article, gold stocks are no different from other stocks in the face of economic downturns. They may have a high potential for returns, but when the global economy takes a nosedive, it takes their value along with it.
I am of course, nowhere close to attaining the level of expertise and excellence borne by Warren Buffet, but I can for sure tell you that there’s no one time that physical gold will ever be worth nothing, or $0, which is something that can most other assets. When I talk about people rushing to buy gold during tough times, I do not mean that they purchase paper assets that are backed by gold, but that they purchase physical gold, which has its unique benefits.
How do investors make money with gold?
When it comes to making a fortune using gold, you have the following options; physical gold bars or coins, a selection of gold mining stocks, shares in gold ETFs, as well as gold futures. Let’s dive deeper into how you can achieve this:
Purchase gold bullions and coins
This is by far the most straightforward way to make money using gold. It involves looking for genuine gold bars, coins, as well as jewelry. To generate profit from the investment, you need to make the purchase with the expectation that your gold can be sold for more at a later date. Gold prices, however, are difficult to predict, but they have generally been on a gradual upward trend in the long term horizons.
In the 1990s, for instance, it was hard for gold to go past the $300 mark, even on a good day. After the financial crisis that happened in 2007 and 2008, however, the price of gold (per ounce), went to as high as $2000 (it is a few hundred dollars shy of this price as of September 2021), something that was fuelled by many investors purchasing more gold to preserve the wealth.
The prices of gold can fluctuate from time to time, but the good thing is that the price of physical gold moves against the market during a global economic crisis.
Investing in gold stocks
You can also invest in gold without ever laying your hands on this shiny metal, by buying stocks in gold mining companies. There are very many gold mining firms whose shares are listed in major stock exchanges, from which you can access mining stocks. Canada happens to be home to most of these mining companies, but you can always research the available gold mining firms in your country.
The main benefit of gold stocks is that they can perform well even gold is falling. Provided that the mining company has skilled directors who can maneuver the market, then it is possible for their stocks to perform well even when gold prices are not looking that impressive.
Unfortunately, gold stocks, like other stocks, are subject to market forces, and their prices can decline in the event of the occurrence of an economic crisis. This can happen even when the price of gold is steadily rising. Also, the price of gold mining stocks can be affected by the nature of the company’s financials, the quality of the management team, and expected production aspects. Most gold stocks can be purchased through common investing apps.
As an investor, you can buy into ETFs, in a bid to stay clear of the risks that arise from investing in one company. ETF, which are traded in the same manner as funds, usually have investors pool their capital, and allocate it into different gold and mining firms. Some well-known gold ETFs include HGY-T and XGD-T. You can also go with ZJG-T if you are out to channel your investment funds into the smaller gold precious metal exploration firms.
Thing is that, while ETFs diversify the risk of investing in a single gold mining stock, any and all of the individual stocks are still subject to stock market fluctuations. This implies that if the market comes tumbling down, the value of your investment can decline, even if the price of gold remains steady.
The concept of making money using gold futures is complicated. These futures are essentially well-structured contracts in which you agree to purchase a given amount of gold at a specific price at some point in the future.
Traders can strategically purchase and sell futures contracts and make a profit as the price of gold changes. The buyers of the futures contracts usually profit when the prices of the commodity rise. The sellers of gold futures contracts book losses whenever the price of this commodity drops.
These futures contracts usually require that investors purchase a minimum of 100 ounces of gold. Owing to the high degree of borrowing involved in such investments, novice investors are usually encouraged to exercise caution.
With all the above approaches to making money using gold, you are required to be careful about how you go about the market entry. I would recommend that you first decide your risk tolerance, conduct comprehensive research, and start slow (investing a small percentage of your investment funds).
If you’re ready to get started, and you have decided that you’d like to add some gold to your investment portfolio, you can start by checking out what the recommended companies below have to offer.
That will be all for today’s article, in which we have addressed the question “How do you make money investing in gold?”. I hope you gained some value from it, and that you’re now in a position to make an informed decision. If you still have some questions that you’d like me to address, drop them in the comments section and I will get back to you ASAP.
I wish you well,
Eric, Investor and Team Member at Gold Retired.