Investments are our security for the future and a safety net for unpredictable times. Putting away some part of your earnings to be invested for future gains is one of the best things you can do for yourself. Hence it is important that we should b prudent and smart when investing.
There are various Investment options with the most popular being the stock market. Investing in bonds, debentures, and equities is one of the popular ways to invest wealth. However, the capricious nature and unpredictability of the stock market have necessitated the need for a more safer and stable type of Investment.
Precious metals have become a viable alternative to equities. Precious metals such as gold and silver are historically precious assets and universal legal tender. Gold and silver have retained their high value all through human civilization and they have been immune to economic meltdowns and financial crises that have rocked the world at different points. These qualities make precious metals Investment a good way to preserve your wealth.
Investing in gold and silver is quite easy to comprehend and straightforward. However, it’s necessary that you take the right steps. Before investing in precious metals, you need to understand the market movement, value, and market options.
This article is meant to offer you a step by step guidance in investing in precious metals.
The Valuable Nature of Gold
Gold is one of the most valuable precious metals on earth. It’s the heaviest metal mined by man and it’s indestructible. Gold is used for unlimited purposes and its demand far outnumbers its supply which keeps its value on the high side.
Gold’s scarcity, value, and unending demand make gold the perfect assets for individuals and even nations who back their currency in gold.
Unpredictable economic factors can make paper money to become worthless. Gold, on the other hand, is immune to economic factors.
Gold is malleable and can be melted to take different forms, shapes, and widths. Gold comes as coins, jewelry, electrical fine wires, bullion bars, etc. This multifunctionality makes gold very valuable.
Understanding Gold Inflation
Gold has always retained a stable value. Even when stock and bonds dips in value, gold remains valuable, hence investors have often turned to gold as a way to protect their assets.
While the dollar fluctuates when economic factors are unfavorable. Gold, on the other hand, rises in value. Hence $,1000 in gold bars can have more purchasing power than a $1,000 US bill.
Remarkably, the rise in gold prices occurred in the same period with oil price hikes in 1979, the global economic recession of 2011, and the covid-19 recession of 2020.
In all of the three cases, gold recorded an increase while the capital market suffered a decline. Gold is a wise investment option because it’s a liquid that can be easily converted into cash.
Gold Price Determinant
The London Bullion Market Association (LMBA) is the world standard in setting the price of gold bullion. The price is set twice daily via electronic auctions.
The LBMA price is the benchmark in the trade of physical gold bullion and derivatives contracts globally. Some traders in a different part of the globe adjust the LBMA price of gold to reflect their market realities. However, the prices are mostly uniform.
The price of gold is generally influenced by the supply and demand for gold from the jewelry market, and Central Banks buying and selling of gold. Another factor is currency devaluation which leads to an increase in demand for gold.
How To Invest In Gold
Since we have explained the nature and characteristics of gold, you will agree gold is a good way to protect your wealth.
The question then is how can you invest in gold?
And which Investment is the best option for you?
There are different ways to invest in gold. Your choice of investment will be shaped by what you hope to achieve. You might want a short
The investment plan, a midterm, or a long investment plan.
Below are various ways to invest in Gold.
Gold coins are another way to invest in gold. If you’re searching for a long-term investment, gold coins are a good choice for you. Gold coins are popular collector’s items that appreciate during the holding period and helps you to make a profit.
Gold coin dealers are commonly collect ancient coins alongside modern ones. The purity and quality of a good coin are measured in karats.
Some of the factors that shape the price of gold coins are:
RARITY – things that are rare normally carry higher value and this is the case with gold coins. Gold coins that are few in circulation see incredibly precious and they are a collector’s dream.
If you can lay your hands on a rare gold coin, you shouldn’t hesitate to take advantage of the opportunity. Rare gold coins can sell for an incredibly high price that will leave you smiling to the bank.
GRADING – the physical appearance of gold coins is rated from Fair (F) to Extremely Fine (EF). The coin wear, luster, and quality of the die-engraved design are considered. A coin that has been into different hands will have a higher rating than others.
ARTISTRY – The intricacy, quality, and originality of the coin’s artwork usually affect the value of the coin. For example, the gold Greek Pantikapaion coin (350–300 BCE) was sold for $3.25 million in 2012 based on the fine portraiture of a bearded satyr.
The increase in the demand for gold has also increased the price of newly minted gold coins. The American Eagle which is one of the most collected gold coins had an increase in price to $1,800 in 2019.
Gold Bullions and Bars
25 percent of gold sold are good bars and coins. Gold bars are more valuable than gold jewelry because they are liquid assets that can easily be converted to cash.
You can buy them online, but you should ensure that you purchase the gold bars from a reputable online dealer. When purchasing good bars you should look out for the stated purity, size, and weight.
You should note that due to the high liquidity of gold bars, it has little value appreciation above the spot price. However, high demand and scarcity can make dealers charge a premium on sales. It is also the policy of dealers to raise the price of gold bars to cover their storage and insurance costs.
When you buy in large volumes of gold bars, it gives you a chance to negotiate a discount from the dealer.
You can have your individual retirement account in gold Investment. With the unpredictability and ever-changing nature of the capital market, investing in gold can help you to avoid the loss of your wealth in the instant of an economic recession or financial crisis.
There are different Gold IRA companies that offer different services which will help you choose the best option for you. A Gold IRA specialist will help you navigate the regulations and help you arrive at the best plan for your future.
Gold IRAs are tangible gold that you purchase and stored in an IRS-approved facility. The value of your asset will appreciate and at the time of your retirement, it would have doubled or tripled in price. You, however, can’t sell your gold without tax penalty until you’re 59½. When you turn 70½ you will take a minimum distribution from a Gold IRA.
Gold IRA is good for you if you’re planning towards your retirement. It helps you to plan long-term and helps you to safeguard your future.
This is an affordable and convenient gold Investment that’s popular and highly liquid. Gold exchange-traded funds (ETFs) are backed by physical gold stored in a bank vault.
In the first half of 2020, a remarkable US$39.5 billion was transacted in gold ETFs. According to the World Gold Council, this number dwarfs the total money spent by the world’s central banks to purchase gold in 2019.
For many Gold ETFs, there are derivatives and options, with gains taxable at the collectibles 28 percent rate. However, you should note that gold ETFs might not be advisable for the long-term due to the fees attached to them.
Gold ETFs are for more sophisticated investors with good knowledge in gold Investment and who have interest in a short time scale.
Gold jewelry is desirable for its aesthetic value as well as its economic value. About 40 percent of gold demand is for jewelry purposes.
Gold jewelry is easy to obtain which makes it a good option for novice investors. Although gold jewelry doesn’t have a similar value as gold bars or coins. Gold jewelry can be melted and sold as a collector’s item for a price above its original purchase value. Gold jewelry is measured by karats which determine its purity and weight.
When sold as scrap, gold jewelry is melted and sold in its raw form. A drawback of this process is that you could get lesser money when you sell as scrap compared to the purchase price.
For example, an 18 karat yellow gold Cartier Love Bracelet currently sells for USD 4,050, could get less than a quarter of this value as scrap.
The dealer could also take a discount as high as 40 percent to cover melting and refining costs.
When you sell your gold jewelry as a collector’s item, you can get the purchase value and even earn a high profit. On websites such as eBay, expensive jewelry brands such as Cartier, Bvlgari, etc has very high resale value.
Gold Mining Stocks and Mutual Funds
This is a type of Investment in paper gold instead of actual gold. Gold mining stocks and mutual funds allow you to invest in gold mining stocks. This way, you will be investing in the gold mining company.
Investing in gold mining stocks and mutual funds provides upside potential beyond the spot price of gold.
You can choose from different companies mining different types of precious metals. Smaller companies often offer the highest return but they also carry more risk.
Gold stocks also come with the volatility of the capital market. However, you can double or even triple your investment when it comes to gold stocks. All you need to do is to choose the right company to invest in.
This type of Investment is, however, best for those who have a higher risk tolerance and are interested in long-term Investment.
This is a way to invest in the movement in the future price of gold future. Gold’s future is a way to invest in gold without having to buy physical gold.
Gold future is a type of gold stock and mutual fund. It is a contract that a person undertakes to buy or sell one bar of gold or 100 troy ounces or more. Quantity of gold at a fixed price and date in the future.
Gold future is popular and it accounts for over 90 percent of gold trading occurs in the futures markets on the COMEX, the London Bullion OTC market, and the Shanghai Gold Exchange (SGE).
When investing in gold Future contracts, you have to set aside a small fraction of the cost. This is to for the purpose of doubling your margin when the price it’s up.
Gold future is a long-term plan with a good return for investment.
Gold certificates are proof of gold stored in a bank vault. Just like gold ETFs, they are backed by gold in a bank vault.
A Gold certificate is a legitimate bill of exchange and it’s as good as the gold bars in the bank. However, the creditworthiness or acceptability of a gold certificate largely depends on the company that issued it. Issued for a quantity of gold stored in a bank vault.
Investing in gold remains one of the best to diversify your portfolio and protect your wealth from the erratic and capricious nature of the equity market. Whatever may be your preference when it comes to investing in gold, it is still the best option in safeguarding your wealth.
When it comes to investing in gold, there’s always something for everyone. All you need to do is consider the various Investment options and select the one that best fits your budget, purpose, and plan.