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Investing in Gold – Everything You Need to Know

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In turbulent times, gold is one of the go to safe-haven investments for traders around the world. With the current economic climate as it is, there is no surprise that gold prices per ounce on the spot trading markets have been hitting all-time highs. Given that the prices have increased close to 30% in 2020, with no end to the economic uncertainty on the horizon, you may be wondering if now’s the right time to invest in gold. Here we will guide you on exactly how you can get started with an investment in gold, and other factors to consider.

Benefits of Investing in Gold

There are a couple of key benefits when you are thinking about investing specifically in gold. Here is an outline of what you should expect from each:

Stability: It is often said that gold is recession-proof. The fact is that according to the charts and historical data, demand for gold, increases during times of uncertainty that can come in many forms. This may be economic in terms of a financial recession, as a result of currency weakness, or stemming from political instability within certain regions.

Ultimately, this stability is well showcased if you take a look at the charts. Gold prices have risen steadily over the years, particularly when economies have been challenged. The case in point is in plain view in 2020 as the price has hit record highs above $2,000.

Diversified Portfolio: A cornerstone of successful investing is to have a balanced portfolio. This is where gold and indeed other precious metals, and some commodities can come in useful. Having gold in your portfolio provides a very secure balance, and in many cases a hedge against volatility and economic uncertainty due to the safe-haven nature of the asset, and the fact that the value is not particularly impacted by the same supply, and demand reactions as most other assets.

What gold will bring to your portfolio is a measure of consistency. It may not be the most high-profile performer when it comes to returns, and looking at the rates of increase over the longer term, it is out performed by most major stock indices, and some other assets, though it has still averaged a very consistent rate of growth particularly within shorter periods of time where larger economic challenges have been in place.

How to Invest in Gold

Investing in any new market or asset seems daunting to a certain extent. This feeling fades once you realize that there are no real barriers to entry. The same is true with investing in gold. Actually there are many ways in which you can kickstart your investment in the asset. While one of these is to physically purchase the gold, you can rest assured that there are several more flexible ways to get involved.

Stocks: Investing in gold-related stocks is an excellent way to get started if you are interested in owning some gold. OK, you will not directly own the actual gold, but you will directly benefit from an uptick in companies which are directly impacted by the prices of gold.

Investing in the likes of mining company stocks also means that you have a good degree of liquidity since you can easily buy and sell your holdings which is one of the challenges if you are purchasing physical gold.

ETFs: Similar to investing in gold stocks, you could choose gold-related ETF or mutual funds. These are basically investments in baskets of gold-related companies as you would get with a stock. The difference here is that you will not have direct ownership of the underlying stocks, and an investment in multiple companies in this manner is certainly more diversified.

This is a more balanced, conservative investment method which retains a lot of liquidity for you as a trader, though there could be some fees and other conditions attached. For that reason, these are more suitable investments for non-beginner traders.

If you are interested you may view our Trading in ETFs guide.

Futures & Options: Another alternative you have when investing in gold or other commodities, is to trade on the futures market. Futures are basically agreements to buy an asset, in this case gold, at a certain point in the future, for a certain price. These are very popular trading markets and can be extremely liquid.

This liquidity can be a positive if you need to trade your gold investment quickly, though you should note that the futures market can be quite volatile, and futures and options trading is considered quite high risk and for the most part only suitable for experienced investors.

Physical Gold: There are several ways to buy physical gold. The most common way to do so is through purchase of gold bullion which is certified as near pure gold and typically purchased in the stereotypical form of gold bars, or certain gold coins and is available from many certified and trustworthy sources around the world.

We recommend these two companies to buy gold:

  1. Gold Broker
  2. Bullion Vault

Who Should Consider Buying Gold?

In reality, an investment in gold can be suitable to almost everyone, albeit for a variety of different reasons. It is an excellent addition to any portfolio as a consistent performer which can add a great amount of diversity depending on how you wish to invest in it.

Particularly in the current uncertain economic climate, an investment in gold seems to have been adjudged a wise choice by many traders as reflected in the current record high prices.

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Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world. A keen trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.

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