Advice for First-Time Gold Investors
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Preparing for your retirement is typically done by investing in the stock market. However, the economic downturns occurring in the last few years have shown that placing all of your money in stocks from different companies may not be the best idea due to extreme volatility.
Buying a few precious metals should help hedge against the risk of investing in the stock market when the economy turns sour.
Why Is Gold Valuable?
Gold is one of the most popular precious metals to own. It's been used for thousands of years as a currency. While it doesn't have intrinsic value, society deems it to be worth a specific amount, which fluctuates every day. The reason gold is used is due to its chemical makeup and scarcity. Gold is non-toxic, portable, stable and relatively rare. It also has a unique color that can be strikingly beautiful compared to other metals.
How Is the Price of Gold Determined?
For over 100 years, the London Gold Market Fixing Company had a specific process used to determine the price of gold. In 2015, the ICE Benchmark Administration (IBA) took over the process and implemented the LBMA Gold Price electronic auction system. Two times each day, the IBA lets investors, gold producers and central banks throughout the world know the LBMA Gold Price, which is given in US dollars.
Ways to Invest in Gold
Investing in gold can be done in a few different ways. You can purchase gold coins minted by the government, gold bars or gold-related ETFs and individual stocks. Purchasing coins allows you to hold the physical metal. Some gold coins even have numismatic value due to their rarity and condition that can elevate their worth even higher. If you purchase a stock related to gold mining, you are exposed to the sector but can't hold the physical metal in your hands
When Should You Buy Gold?
During times when the economy is going through a downturn or having a crisis, gold tends to appreciate higher in value. If you believe there's going to be a recession or financial crisis occurring in the future, it may be a good time to purchase gold and keep it in a portfolio as a hedge against a deflating economy. Fiat currencies have come and gone throughout the years, while gold has stood firm and lasted as a sign of wealth, which should make it worth owning in both good times and bad.
Paper Gold and Physical Gold
Comparing the differences in paper gold vs physical gold should be done if you're thinking about investing in this precious metal. Buying a gold-related ETF allows you to invest in an asset associated with the gold industry. Unfortunately, there's no way to know if the ETF you purchase actually owns the physical gold needed to back up the shares they've issued. It might be loaned out, and you'd never know. On the other hand, physical gold is an asset you can touch, which needs to be stored and kept safe. Investing in a gold IRA allows you to utilize this option.
You can purchase gold coins and hold them in your portfolio. Goldco states, “When you invest in physical gold, you choose which form of physical gold to invest in. You can even invest in proof coins, limited edition mintages, and other forms of gold that have numismatic value above and beyond their intrinsic metal value. That can allow you to further grow your investment over the coming years above and beyond what you’d be able to with an ETF.”
Deciding to invest in gold may be an option you'd like to take. You'll just need to consider the differences in holding paper gold vs physical gold in your portfolio.
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