Topics Covered Hide
- 1 Understanding what drives the gold value
- 2 Reasons to buy gold
- 3 Excellent against deflation
- 4 Supply constraints keep the value up
- 5 Diversify the portfolio
- 6 The idea of preservation of wealth
- 7 Gold bullion – More than satisfying
- 8 What to think about when buying gold bullion
- 9 Gold futures – Suitable for the more experienced
- 10 If the price goes up, you can make lots of money overnight.
- 11 Gold owning EFTs – Probably one of the best ideas.
- 12 Mining stocks – Going the other direction
- 13 ETFs behind mining stocks – A safer option for serious investors
- 14 Conclusion
Gold has an impressive history, as well as a high value that has never gone down. It is part of the culture, and despite being popular today, it is not just a trend. Gold has always been an important asset, whether you count ancient Chinese, Greeks, or Egyptians.
These days, gold is appreciated for its beauty in jewelry, but also for its value – one of the most useful investments out there. There are more reasons wherefore people buy it – one of the most sought-after metals, no doubt. But then, learning how to buy gold could be a bit tricky.
The price of gold keeps fluctuating – just like any other asset out there. It is used for jewelry, investment guarantees, and even the manufacturing industry. The past century saw an even greater improvement throughout the industrial revolution. Is it still a good choice?
Absolutely. In this article, you will first discover what draws the value of gold and what makes it so appreciated all over the world. You will then learn about the most convenient ways to purchase gold, regardless of your reasons.
Understanding what drives the gold value
Just like other assets, gold depends on demand and supply. But then, there is a bit of extra value to think about. Governments and central banks tend to compromise on the incredible demand source for this metal.
The gold price has been driven by the constant appreciation as an investment, too, especially from large companies or governments. Unlike currencies, gold makes a hedge contrary to inflation, so it moves in the opposite direction to currencies like the American dollar.
The supply of gold is most commonly defined by the mining industry – which has been leveled off around 2016. The commodity is considered extremely precious, even if it cannot generate dividends or earnings in the long run.
Overtime, its value has always gone up or down based on how many people are interested in buying it. To keep it simple, it is all about demand and supply. The good news is things have not changed too much over the past few thousand of years.
While the value of gold does fluctuate, it is usually considered an extraordinary option to diversify the portfolio. It is also a financial cover in uncertain times – such as financial crises. Given its value, gold is normally preserved from one generation to another in individual uses.
The metal can be easily melted and will never corrode. It is easy to work with and allows great versatility. It is lovely and can be used in the electronic manufacturing industry as well – as well as other similar fields.
The American dollar is one of the factors that affect the value of gold. But then, when the dollar depreciates, people turn to gold as a safety net, adding to its value even more. Between 1998 and 2008, the price of gold has tripled. It has also doubled up between 2008 and 2012.
Now, learning how to buy gold starts with finding a reason. There has to be a purpose behind it.
Reasons to buy gold
There are a few reasons wherefore more and more people learn how to buy gold.
Great against inflation
You do not have to be a genius to figure this one out – gold has an incredible hedge to inflation. Whenever the cost of living goes up, so does the value of gold. Life becomes hard, and gold goes up in price – simple as that.
On the same note, gold also tends to gain value as top world currencies lose value. With these ideas in mind, gold is a great choice when trying to find a safety net. You have no idea what is going to happen, so a backup plan could sort you out.
Excellent against deflation
Deflation is another concept that may cause economic trouble – despite being overlooked. Basically, it occurs when prices go down a bit. Everything seems to slow down a little, including the money circuit or how businesses work.
At this time, the economy is in debt. Such events occurred throughout the 1930s, but also during the financial crisis from 2008 – nothing too major, though. While everything else dropped in price, the value of gold went up.
Useful in uncertain geopolitical times
Whether it was geopolitical certainty or uncertainty, the value of gold has not been affected by such times. It makes no difference what countries or areas are in trouble – gold seems immune to these economic crises, and its value is less likely to drop.
In fact, professional investors will most likely refer to gold as a crisis commodity. This is because people with such commodities flee to safety when there is tension. Gold performs like no other investment – safe and efficient.
Supply constraints keep the value up
Normally, a gold mine will take around ten years to get into production. But at the same time, the quantity of gold is limited – whether mined or not. It is a finite resource that cannot be produced, and this is what keeps the price high.
Most of the gold from the 1990s came from bullion sales occurring over various central bank vaults. Sales went down slowly until 2008. New generations of mines have just started to produce, but the extra gold will not skyrocket.
Diversify the portfolio
Now, saving is a good idea when you are just getting into the workforce. But as you plan for retirement and start making money, you need to diversify the portfolio. Take a look at major currencies that dominated the world throughout history.
In fact, it is estimated that a dominating currency will keep in charge for about three decades. After that, another currency takes over, and so on. Some currencies go down overnight – look at what happened in Venezuela.
Leaving jokes aside, Monopoly money is literally more valuable than the Venezuelan bolívar. You will spend around $20 on a nice Monopoly game. On the same note, a single American dollar is worth hundreds of Venezuelan bolivars.
With these ideas in mind, diversifying your portfolio is like having some backup plans for unexpected situations. The general idea is to find investments that are not connected one to the other, as you do not want them to drag each other down.
Gold has always had a negative connection to financial elements and stocks, meaning it is independent. Certain years or decades – such as the 1970s – were terrible for stocks, but excellent for gold. Then, the 1980s were not too good for gold, but they were great for stocks.
What does it mean? Mixing up stocks and gold will help you minimize risk because they go one against the other. Apart from risk, you will also reduce the overall volatility while adding to your overall profit – what else can you ask for?
The idea of preservation of wealth
Then, once you figure out how to buy gold, you will become familiar with the concept of preservation of wealth. Gold is extremely trusted for preservation and investments. How about currencies? They will depreciate with fluctuations in the economy – they may also disappear.
In contrast, gold bought with the respective currency will retain its value and even give you profit overtime.
Now, how do you buy gold? It is not like you can go to a supermarket. So, what options do you have?
Gold bullion – More than satisfying
This is by far the most satisfying option when trying to figure out how to buy gold. Why? Simple – you get in physically. Whether you invest in gold bars or coins, you will have the satisfaction to hold the gold, touch it and look at it.
No one will bother about a bar or two, but owning gold in larger amounts comes with some drawbacks. For example, you need to safeguard it. Keep it in a safe hidden place and make sure no one knows about it. On the same note, you will have to ensure physical gold.
In order to make some money out of this idea, physical gold owners will rely on nothing but the rising price. Physical gold comes with some extra expenses, so a growing price is a must to make money out of this deal.
In contrast, companies like gold mines will simply produce more gold and drive more profit.
There are more ways to get gold bullion. For example, you can find online dealers. There are lots of options out there – you need to rely on someone with a good reputation. Then, you can also explore the market and find local dealers, not to mention collectors in the area.
Pawn shops will also sell gold, but in small amounts. Keep an eye on the spot price before buying gold. The spot price is the price per ounce at the moment – you want to make some profit out of it. Also, pawn shops are likely to charge a bit more.
Now, when it comes to choosing between bars and coins, opt for bars if you have this option. Gold coins hold more value. Apart from the actual gold content, you will also pay the collector value of the respective coin – something that you are not interested in.
As for risks, the possibility of getting the gold stolen is probably the biggest one. The second risk kicks in when it comes to selling gold. It might be difficult to get a full value for your gold, especially if you need money fast. In other words, you may need to settle for less.
What to think about when buying gold bullion
Buying physical gold is not as easy as it may seem. Here are some of the main considerations.
Where are you planning to store the gold? Physical gold requires storage. Sure, you can keep some bars in a drawer, by your bed. But then, is that really a good option? What if someone robs the house while you are out? This is the reason wherefore most people prefer a custodian.
Make sure you take your time while researching storage options. Besides, storage adds to the expenses.
Protection against theft is not everything – you need to pay attention to potential natural disasters too. What if a fire destroys everything? What if a tornado takes gold away? An insurance is likely to protect you against such problems.
But then, this insurance will add some more to your expenses.
Should you get a storage provider, look into their insurance policy upfront.
The gold content is extremely important when it comes to value, whether you get bars, coins, or jewelry. The purity level of investment gold must be able to face the test of time. What does it mean? Go for gold with a 91% purity – if you can find 99% purity, even better.
Learning how to buy gold as investment targets more aspects – the actual manufacturer is one of them. You need to ensure you buy gold from a reputable source – look for respected names with plenty of notoriety in the financial industry.
Gold futures – Suitable for the more experienced
Gold futures represent one of the most popular choices when not sure how to buy gold. This option is more suitable for investors or speculators. You will need to familiarize yourself with the price of gold – whether it is rising or falling.
You can also get the gold physically delivered to you, yet most people choose not to.
So, why would you use gold futures then? The huge amount of leverage is what makes the difference. You can purchase plenty of gold futures without having to spend a fortune – the amount will be lower than the market value.
If the price goes up, you can make lots of money overnight.
Basically, this option can help you get rich fast. But on the same note, the price may also go in the opposite direction. This is the risk associated with it. Future contracts go both ways. If the gold price moves against you, you will need to put in lots of money to keep the contract going.
Otherwise, the broker will close the position, causing you to take a loss. The good news is that fluctuations are relatively mild, and chances are the price will go back up at some point. The amount of money you will make or lose is directly proportional to the amount of futures you have.
Generally speaking, if you are just learning how to buy gold and you are still new to this industry, you should stay away from futures. This market is for advanced and seasoned investors. Plus, not all the brokers allow futures trading.
Gold owning EFTs – Probably one of the best ideas.
Investing in exchange-traded funds – ETFs – is a common choice today for some obvious reasons.
First, having gold bullion comes with risks – extra money on security or insurance, lots of stress, and hassle. Then, futures imply sleeping three hours a night due to the fast-paced industry, not to mention the issues associated with the margin requirements.
ETFs that track gold represent the best option then. There are quite a few good options out there – some ETFs are larger than others and bring in more security. They represent your best choice, mostly because of their goals – matching the price performance of gold, but without the annual expense ratio of the ETF.
Now, this is another trick – find funds with low expense ratios, such as 0.1% to 0.4%.
Another major benefit of owning an ETF over physical gold is that you can exchange it for cash much faster than normal – and not for a low value, but for the actual market price. You can trade the fund whenever the market is open – wait for the right price and go for it.
Selling ETFs is like selling stocks. They are more liquid, and you can deal with them from home.
ETFs seem perfect from many points of view, but they are not. Sure, they do have some benefits, but they also have some drawbacks – quite important when trying to figure out how to buy gold. The exposure to the gold price is one of them.
In other words, whether the price goes up or down, the fund will go in the same direction – without the fund cost, of course. Like stocks, gold also has times when it goes volatile. Volatility is what could turn your investment into a loss, yet things are likely to change in the long run.
Mining stocks – Going the other direction
This is another good option when not sure how to take advantage of the constantly growing value of gold. Now, forget about gold for a moment and think about all the mining companies producing it – that is where the real money is.
You may not be able to own a mining company, but mining stocks represent a close enough alternative.
At this point, there are two different ways to take advantage of gold and profit from its growing value. First, you get money if the price of gold goes up – chances are it will. Even if it goes down a little every now and then, the overall trend is ascending.
Second, the miner has the capability to increase the production overtime – even more money.
Just like any other option out there, this one also has some risks. You are about to invest your money in individual stocks. At this point, you need to research the respective business as if your life depended on it. You need to understand everything about it.
There are lots of mines out there. Some of them are run by reputable companies with decades on the market. Some others are quite risky and sketchy – in other words, they can get out of business overnight, meaning money down the drain.
While not necessarily the best option, it might be a good idea to invest in large companies. Stay away from small miners or companies that are still struggling to produce in their mines. And then, remember that just like all stocks out there, mining stocks are also volatile.
ETFs behind mining stocks – A safer option for serious investors
Not interested in spending weeks researching companies before investing in stocks? Buying an ETF might be the best choice – and not just any ETF, but gold miner ETFs. They will expose you to some of the biggest players on the market.
Such funds are well-diversified over the sector, meaning a low performance will not hurt you too much.
There are a few large funds in this industry – most people would rather go with these big names than the small players. Their expense ratios range around 0.5% – you do not want much more than that. Such funds bring the benefit of owning individual miners – all about diversification.
Knowing how to buy gold implies assessing both the potential benefits and risks.
Diversified ETFs will help by diversifying assets – great if one company does not do very well. But then, they cannot protect your investment against factors that affect the whole mining industry. For example, you cannot get protection against sustained low prices.
Then, remember that not all funds are created equal.
Some of them rely on established miners, while others deal with juniors – a bit of extra risk there.
ConclusionAs a short final conclusion, it does not take a genius to learn how to buy gold. You do not need to be an expert. Indeed, there are more ways to buy gold, and each of them has both advantages and disadvantages.
At this point, it is up to you to determine which option is better. Each investor has their own ideas and plans to make money. Some people are looking after short-term investment, while others are interested in holding gold over long periods of time.
Whichever option you choose, the price of gold is likely to keep going up, despite the fluctuations. Holding gold will most likely give you a profit, regardless of which option you choose. As for short-term investments, a bit of education is mandatory.