Is gold a good investment right now? With the current state of the global economy, one cannot help but want to think about what each asset class will do to their portfolio. In today’s post, we’ll take a deep look into what gold investments are all about and whether you can benefit from them. Let’s get into it right away.
A Brief History of Gold Investment
Since the start of stock markets, gold has been observed to have a negative correlation with stocks and other paper assets, and a positive correlation with inflation. That said, the history of gold as a store of value goes way before the inception of stock markets.
There is evidence that gold coins were minted and used as currency as early as 550 BC. At this time, however, gold was mainly perceived as a symbol of wealth, and this was the case long before it was used as a currency. Those who owned gold about 4000 BC were perceived as powerful and wealthy individuals.
It was not until the late 1800s that gold made its debut in the contemporary finance industry. A significant number of nations, including the U.S., adopted the gold standard, in which the value of the currency of the day was fixed to the price of gold.
With time, however, the gold standard was dropped and readopted in various countries, before finally paving way for the use of fiat currencies in 1971.
During the 2008 financial crisis, experts observed that the price of gold remained relatively stagnant before it went on to rise in the following years. The spike was a result of a financial phenomenon known as Quantitative Easing by the Central Banks. Generally, quantitative easing tends to trigger a rapid increase in the inflation rate, which in itself causes the price of gold to rise.
Why do Investors Add Gold to Their Portfolios?
Many investors in the present day world have some of their wealth in the form of this shiny metal. Why do they insist on owning gold coins and bars? Below are some of the main reasons:
1. The preservation of wealth
Gold has, for many years, been trusted by many investors for its wealth preservation qualities. Say you had a $50 note, and your friend had a piece of gold worth $50, in 1970. If you held on to your paper money since then, then you still have the $50 note which cannot purchase as many products as it would have in the 70s.
However, things will be different for your friend since the value of gold has gone up. The piece of gold that was worth $50 is now worth over $2000, and this means that your friend would have an upper hand. As you can see, this is a very powerful secret held by secret investors who know that allocating about 5-15% of their funds to gold can be sufficient to preserve their wealth.
2. Portfolio diversification
A balanced investment portfolio ought to have assets that are negatively correlated to the stock market. Such is a financially sound strategy that helps to counter market risks and volatility many investors are exposed to today.
3. A safe haven
This shiny metal is a rare asset that has managed to maintain its value over the years. Beyond that, it has proven to be a useful asset during adverse economic events. Investors use it as insurance or as a safe haven during such times.
4. A hedge against inflation
Gold prices often go up alongside the steadily rising inflation rates, as well as the depreciation of the dollar. It is for this reason that investors tend to rely on gold to hedge their wealth so that they can avoid losing their money.
As already highlighted, the value of gold has grown steadily over the years, and those who have held a portion of their portfolio in this precious metal can attest to this. A few decades ago, the price of 1 gram of gold was valued at less than $100, but in the present day, it is above $1800.
Clearly, gold presents investors with an opportunity to grow their wealth, just as is the case with other popular investments, with the only difference being that gold has other superior properties.
Physical Gold as an Investment Asset
A popular gold investment product for investors of all types is gold bullion, which is just a cool name used to refer to the refined investment-grade form of gold. Investors purchase gold bullion in the form of bars, ingots, and coins, from authorized precious metal dealers.
You can find reliable dealers in your city ( after which you can make your way into their physical stores), or you can check out the offers put up on e-commerce sites owned by companies that have built themselves a good reputation in the industry.
Buying physical gold is the in-thing among gold investors because it enables them to tap into the benefits of gold we discussed earlier on.
Purchasing gold-based paper assets such as gold stocks, gold ETFs, and mutual funds that give you exposure to the price movements of gold may help you grow your wealth, but may not protect you from economic downturns or other unprecedented events such as wars and geopolitical tension that triggers the rapid decline in the global economy.
One thing you ought to know about physical gold is that it cannot be stored like other assets. Holding the physical gold in your home safe may only attract thieves and lead to the loss of your wealth.
With this in mind, most investors who purchase physical gold for investment often open gold individual retirement accounts (Gold IRAs) and ensure that their assets are held in an IRS-approved precious metal depository. Such depositories are in most cases usually world-class facilities, and they are usually insured by well-known insurance companies.
Frequently asked questions on “Is gold a good investment right now?”
1. Is gold a good investment right now?
Depends on why you are asking. Gold as an asset will present you with some unique benefits and drawbacks, and it is up to you to weigh them and decide whether it is worth adding to your portfolio. Generally, however, it is worth noting that in times of economic unrest, an oncoming global recession, and stock market crashes, most investors turn to gold since most other paper assets are usually experiencing a very significant decline in value.
You might want to therefore consider talking to a gold investment expert or ordering a gold IRA kit to learn more about what you stand to gain (or lose) by investing in gold.
2. Should I invest in gold stocks?
It depends on what your financial objectives are, and what your preferences are as an investor. Gold stocks, as you will learn, exhibit similar behavior to most other paper assets. This may work for or against you, hence you need to position yourself in such a way that you will not end up losing your money.
If you are out to diversify your portfolio and hedge your wealth against inflation, however, you may have a better shot at this with physical gold.
3. What should I invest in, gold coins vs gold bars?
This is one of the most commonly asked questions by beginners getting their feet into the gold investment industry and for a good reason. Many beginners want to understand whether the two forms of gold present similar benefits or are different.
The truth about these assets is that they present you with the benefits of physical gold, but they may have some outstanding differences. If you need assets that you can liquidate faster, then gold coins should be your top pick. Gold bars may be harder to liquidate, but have also been found to carry a higher gold content, hence may be more valuable per unit of weight.
4. How should I purchase gold?
There are many ways through which you can purchase gold. You can start by searching for a precious metal dealer near your home, or you can search for an online dealer.
Whichever option you decide to go with, make sure that you search for the company’s ratings and reviews on consumer trust sites such as Trustpilot and Better Business Bureau. If a company does not have a track record of performance, then you ought not to consider purchasing any gold from it.
That will be all for this post on whether gold is a good investment right now. I hope you found a couple of insights that will guide you as you decide on whether to purchase some gold. If you have more questions about today’s topic, 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!