Gold is but one commodity that many investors hold. Simply put, it offers protection against inflation, as gold value tends to increase with overall price increases. Is investing in gold a good idea though?
Gold also tends to increase in value as it is a scarce metal with a finite supply. Moreover, it has been & still is, the foundation upon which society has built the concept of money. So, should you be investing in gold?
The gold rush
In old times people would start their search for gold with the promise of becoming rich. Nowadays, it’s a lot easier to ‘find’ gold by using a financial broker.
You may not own gold in physical form, but you can buy a commodity future for example. Given futures are not the easiest products, it is recommended to start with gold ETFs or gold (mine) stocks.
Investing in gold can be as straightforward as any thematic investment, and many of the same principles apply. Find out how ETFs work to get started on gold ETFs.
‘Exposure’ (to own in your portfolio) to gold is well advocated but isn’t always best based on your risk appetite. If you are a defensive or balanced investor, however, it most likely makes sense to invest in gold.
Practical applications of Gold
Aside from the value, we all decided gold has in our financial system, the commodity is also used in physical form.
The highly sought after product is used in technology such as smartphones, microchips and other computer parts. Moreover, whenever you travel by air, best be sure there is gold in the aeroplane you flew with.
Buying physical gold
Ok, you got us. It is also possible to buy physical gold and re-sell at a later stage. Yet do you really have the space & patience to wait out a price spike? Moreover, what if the focus shifts towards commodities like oil or wheat? You are now ‘stuck’ with gold no one wants to take off your hands unless you offer a sizeable discount.
So no, investing in gold by buying it physically cannot be recommended. But all the disadvantages are turned into perks when you buy it digitally.
Dark side to investing in gold
Investing in gold, like any other investment, has its disadvantages too. Firstly, the value of gold can become rather unstable if one of the below happens:
- World peace or a time of truce, demand decreases
- Gold supply increases as ‘new’ gold deposits are discovered
- New (digital currency) challenges the economic system & the gold standard
No investment should be an all-in bet & neither should gold. It’s a good investment to diversify your portfolio but should not blind you from its downsides.
Investing in gold overall
Gold is not always a safe and stable investment. However, gold will never go bankrupt and it will never lose its value entirely. Below, you can find a price development over time of a gold tracker.
In fact, historically, gold has grown until around 2011, when it took a dip and now has recovered to its 2011 all-time high. This was taken from a Gold ETF investing in gold companies directly, ticker GLD.
Investing in gold with a broker
To get a sense of a broker & its platform, you can open a demo account to simulate the investments you would otherwise have committed to. To do this, navigate to a broker’s website like IG, Saxo or Etoro & click open a demo account.
Simply put, it offers protection against inflation, as gold value tends to increase with overall price increases.
You can invest in a gold commodity future. Given the product’s complexity, it is recommended to start with gold ETFs or gold company stocks.
There is no best time to invest in gold. But when inflation is bound to increase or global unrest increases, gold usually outperforms other assets.