How to Invest in Gold
Something that may surprise you is that many people invest in gold in the 21st century. It may seem old-fashioned, but it is actually not uncommon, and there are many different ways that gold can be invested in. One of the primary arguments for investing in gold is that it is more stable and predictable in terms of value compared to many stocks, and this certainly makes it worth thinking about. This article covers some of the arguments in favor of investing in gold, and some of the ways you can go about it if it is of interest to you.
An Overview of the Value of Gold
Gold has long been considered one of the most valuable elements that humans can come by. It has been a symbol of wealth and prosperity since ancient times, and it has been a feature of many different currencies throughout history. Many ancient cultures have regarded gold as the most valuable thing they could come by, using it to adorn their most wealthy and powerful members of society. It was perhaps the Ancient Egyptians who first used gold for creating jewelry, but the first usage of gold as a form of currency was in approximately 560 B.C. This was when gold coins first came into usage, and the importance of gold in its relationship to wealth and finance has only continued to grow.
It was perhaps the British that were responsible for the ubiquity of gold as a form of currency and symbol of wealth becoming a global phenomenon. The British began to use metal as a currency in roughly 1066. At this time, they developed a system of coinage which was all based on the value of other metals relative to gold. They then went on to be a hugely dominant force in world politics and history, and they are therefore arguably the cause of the appreciation of gold worldwide as an extremely valuable mineral.
Later on, the US government developed a gold standard in 1792, which evaluated the value of everything based on how it corresponded to either gold or silver. Up until the 1930s, gold was actively mined for the creation of new gold coins in the USA, as this was what the currency was founded on. The tradition of the gold standard actually lasted all the way until the 1970s, when the US currency was no longer so dependent on gold. However, this has all entrenched the value of gold in our society, and gold is cherished to this day as a highly precious and coveted material. The gold standard is also continuously reevaluated and maintained, and it is arguably still fairly relevant in finance and world economies, though it is not an official part of the US currency anymore.
If you are in any doubt as to the value of gold in the world, you need look no further than major financial organizations like banks and the International Monetary Fund. These organizations all own huge quantities of gold, and it has recently been reported that many key banks have been acquiring gold to add to their reserves. This is supposedly due to concerns that they may have about the long-term prospects of the global economy, and arguably reflects that gold is still valued as a highly valuable substance by mankind. Its value is certainly more enduring than currency and is also often far more stable than stocks, for example. This is part of what makes it an alluring investment opportunity for so many.
Much of the appeal of gold to investors has to do with its historic use as a safe option for those who were going through some time of turmoil or strife. Gold has essentially always been regarded as valuable and prized, even when currencies have lost their value or civilizations have collapsed. Those who advocate investing in gold often point to such historical examples as a reason for retaining gold as an investment option as something that is potentially far more reliable than any other kind of investment. Its universal appeal in the modern world makes it even more attractive from this standpoint.
Many investors follow the news closely and subsequently base their investment choices on events unfolding in the world around us. Because gold is seen as a stable and safe investment choice, it is fairly common for people to invest in gold when some type of instability or uncertainty is reported in the global economy. While this is not necessarily necessary, it is not a bad idea to have some type of investment in gold, in case some type of economic catastrophe unfolds. In such situations it is potentially a kind of security or insurance.
Investing in Gold
There are many different reasons that a person might choose to invest in gold. Some people invest exclusively in gold, while others simply have investments in gold as part of their portfolio. If you intend to spend a good deal of time or resources in investing in general, then it is not a bad idea to have a diverse portfolio. This generally ensures less dependence on a particular sector, and gold is a good option as it is not directly attached to consequences that may arise in other sectors, like the housing sector or stocks in general. This makes it easier to ensure that your investments are always profitable, and it isn’t such a negative if a particular sector that you have invested in takes a hit in some way.
Some people invest for the sake of growth and others for the sake of complementing their income. The former are generally more drawn to investing in gold in the form of stocks, as these stocks are usually affected quite strongly by changes in the value of gold. It is therefore not the best choice for strengthening one’s income to simply invest in gold stocks, if your intention or preference is to have investments as a fairly passive form of acquiring wealth or capital. On the other hand, if you enjoy growth investment, then gold stocks are a fairly reliable choice. The nature of gold stocks means that, when there is an increase in the value of gold, the stocks become substantially more valuable, and you can generally get a better return on your investment in gold stocks than you might in physical gold or other types of gold investment.
Investing in the gold mining sector is also fairly common, but it can be something of a risky choice for investing. This is because the sector can actually be quite volatile, despite the generally consistent value of gold overall. As such, if you are interested in investing in the gold mining sector, it is worth being especially careful about the companies you choose to buy stocks from and do some research into them and their performance before you make a decision. You should look to make sure especially that the company has had low debt throughout its lifetime and that it has consistently had healthy flows of cash and growth. This is a fairly good indicator of a reliable company to invest in.
There are different stances to investing in gold when it comes to experts in investing and finance. Some say that gold is a vital commodity to invest in, and that maybe up to 15% of your portfolio should be some type of investment in gold. Others argue that it is an outdated form of investing, and that it is almost pointless when there are other more promising sectors that are growing rapidly and with considerable payoff to those who choose to invest in them. When it comes to physical gold, the argument is generally that it is worth holding because many banks do as well and that its value is generally fairly stable due to its rarity.
As far as physical gold as a form of insurance is concerned, it is often advised that you simply purchase a quantity of gold and hold onto it in the same way that you might an insurance policy. This is essentially in case of emergency so that you have something in the way of backup in case your other investments backfire. In that instance, the gold can simply be sold or traded, as its value is inherent and often considerable, especially if it is high quality.
If you are looking to invest in physical gold, there are different forms that it can be bought or found in. Common choices are gold bullions or bars. Bullions can also be bought in coin form, and their value is directly tied to the gold standard. They are minted in many different countries, and they vary in terms of their quality and therefore their value. Weights and sizes also vary, and this obviously affects the value of the physical item directly. A very popular choice among those who invest in physical gold is purchasing one-ounce gold bullion coins, as these are relatively convenient to store and generally not very difficult to sell if needed.
It is also somewhat common to purchase golds with particular historic or aesthetic value instead of purchasing on the basis of the gold standard. This is not as dependable or reliable as buying gold based on its intrinsic value but can be a considerably profitable investment too, if you know how to determine the value of such artefacts and how to store them so that their value is maintained or even grows over time. The most common example of this is original British gold sovereigns, which were the first version of the British pound. They are bought and traded fairly regularly around the world, which makes them a good choice for people looking to get into this type of gold investment.
While gold is often seen as something of a security in the form of investment by many, this does not mean it is always a good investment. Like anything else, its value fluctuates, and there have been better and worse times to invest in gold. It is sometimes better to invest in physical gold, but this obviously comes with its own risks. On the other hand, it is sometimes best to invest in gold stocks, but this depends on the performance of gold stocks in general and their relationship to other events globally.
