Does It Still Pay To Invest in Gold?
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Investment in gold is subject to a number of variables, with the objective of the investment being one and the same. Ever since the financial crisis of 2008, buying gold bars and coins—as an alternative liquid asset—has become one of the preferred investment methods—especially for those seeking safe haven against another economic slump.
Conventionally, gold has always been a controversial investment method mostly because of low returns in the short-run. While it’s true that the metal has some intrinsic qualities and can not only be used in jewelry but also to diversify an investment portfolio, the real question is “Does it pay in the modern economy?”
Before we answer that, let’s consider the different ways of adding gold to your portfolio.
Available in a variety of denominations of an ounce, reliable gold coins are easily accessible to the public. One of the biggest pros of gold coins is that even if you’re trying to secure them against a small amount of cash, you can easily purchase in small amounts.
Bigger than coins, gold bars typically range from size of half a gram to a kilo. Just like coins, they can be acquired from gold dealers and brokers. Between coins and bars, bars usually have a low markup rate but since they aren’t divisible, you need to make a bigger purchase, at once.
In coins and bars, you take the physical possession of gold; however, with gold stocks, you’re not investing in the metal but in the company that mines gold. Like any other investment, gold stocks can be volatile and may not bring the returns you had hoped for.
A few factors that can affect the performance of gold stocks are geopolitical tensions in the mining region, production and labor halt efficiency and fluctuations in currency exchange rates.
Exchange-traded Funds (ETF)
A gold ETF investment means that you’ll be investing in gold but won’t have the physical ownership of the investment. Investment brokers can help you secure a gold ETF, which you can trade on the stock exchange. Investing in ETF is preferred because you can easily buy and sell and hedge any risk, in case of an upsurge in gold prices.
ETFs are also a good strategy for investors who want a better understanding of the gold mining industry and want to diversify gold investments, away from stocks and bullion bars.
Why is it a good idea to invest in gold?
Currently, the top two economic giants—China and the US—are engaged in a trade war that doesn’t seem to be reaching a deal, despite continued efforts for a positive result. The uncertainty in the air has made investors cynical of the market stability and gold has become a safety net. Apart from the US and China, tensions in the Middle East, Brexit, unrest in Turkey and other European regions and hysteria of possible global recession have all played a part in the increase in gold investments.
At the moment, investors are more worried about diversification and limiting exposure of their portfolios, in case the global economy heads for collapse. Since 2013, gold prices have reached a record high and private investors have caused a surge in demand. So, evaluating an investment in gold on the basis of returns—especially looking at the political climate around the world—is immature.
The question you should ask is how gold investment fares in today’s economy? And the answer is, “it protects you from instability in financial markets and maintains your purchasing power.”