This page examines how to source and buy the right kind of investment gold bullion, how this compares with other ways of buying gold and how to ensure you only deal with trustworthy bullion dealers.
As well as the how what and where, we look at the pros and cons of using gold bullion as an investment, the risks involved and the ethical side of investing in gold.
Some Gold History
Gold has been used as a form of currency since 560 BC, when stamped coins were used for trade instead of jewelry. Gold grew in popularity for trade, commerce, and wealth throughout Asia, Europe, Africa, and the New World.
The US tied its paper and coin currency to either gold or silver in 1792, this ‘bimetallic’ standard backed all currency with the two metals. The paper currency and coins were just a representation of the metal held in the bank vault.
This started to change in the 20th century, first with the 1913 creation of the Federal Reserve. The second was in 1934 with the Gold Act that gave ownership of all gold coins to the US government and stopped mining of gold for coins. Finally Richard Nixon in 1971 ended the gold standard and the US has had fiat (backed by nothing) currency since.
All world currencies have done the same and fiat is the standard. None the less, central banks, the World Bank, and the International Monetary Fund IMF hold gold amounting to 17.2% of the above ground stocks. The demand for gold is still strong and though many are not buying the metal itself, the same money is going into gold ETFs.
Gold Increases Value
Over the years gold has held or increased it value, this makes gold an inflation proof investment.
Fiat paper currency cannot by its nature do the same. When the US got off the gold standard in 1971, an ounce of gold was $35. It is now $1785. With Inflation in 1971 for $35 you could purchase $225 worth of goods and services in today’s dollars. That is assuming you held the money in a savings account that was paying the inflation rate. You would be much better off if you had bought an ounce of gold.
The Dollar’s Decline
Now more than ever there are concerns about the value of the US dollar. The FED has been printing money which erodes the dollar with inflation even faster. With the uncertainty of recession and a crisis like COVID-19 investors will see their cash and other investments lose value, and switch to a hard asset like gold. Additionally gold benefits greatly from a dollar decline, because it is tied globally to the price of the dollar. The reasons for this are first, investors must sell their dollars which is the only thing that can be used to purchase gold. This action of diversification lowers the value of the dollar. Second, with a weaker dollar, the price of gold relative to other currencies is also cheaper, increasing the demand to purchase gold with those currencies.
With political uncertainty comes risk. The rising tensions that have been built in the Middle East, between the Koreas, in the South China Sea, and Africa, as well as between NATO Countries and former Eastern Bloc nations, humans have consistently had fears of the future or in some cases the present. Gold has remained a safe haven that is easily portable and in general can be converted. The greater the uncertainty, history has shown that holders were able to protect their wealth and in some cases even buy their way out of problems.
Because of golds nature to gain value during economic downturns and to be resistant or even counteract the effects of inflation, by investing in gold as a portion of a portfolio, investors have used gold to strengthen their total holdings and reduce the overall risk.
Growth investors are usually attracted to gold stocks and especially ETFs because they will generally rise and fall with the gold price and not pay dividends that income investors are searching for. But, mining companies that are well managed can still be profitable when the price of gold falls, and be even better when the price does increase. Just a small increase in the price of gold will cause the price of a mining stock to have an even higher return than that to be found with the metal or ETFs alone.
Gold stocks that have paid dividends have historically resulted in higher gains than the rest of the sector as well. This can help the growth investor, when they are still able to gain from the stock price as well as obtain a dividend. And on the back end, when the sector is in a downturn dividend paying stocks usually hold their value better because these stocks are usually managed quite well
Gold Mining Stocks
Mining stocks are usually quite volatile. Investors must consider the company’s performance and the dividend payout reliability. If the company has low debt levels they are more likely to pay a dividend, assuming their cash inflows and capital investments allow it. One should think of miners on the long term as they require large upfront investments to get the yellow metal from the ground.
Different Ways of Owning Gold
There are several ways to invest in gold and we are able to help you with all of them. The best way for you depends on your circumstances and goals, some of these are:
- Gold Futures
- Gold Bullion Coins and Bars
- Gold Stocks
- Gold ETFs
- Gold Mutual Funds
How to Invest in Gold
For anyone wanting to know how to invest in gold – at it’s most basic level it’s very similar to making any investment or profitable trade. You buy at a price that’s lower than you sell.
Although many markets and investments are prone to high volatility, sharp rises and even deeper plunges, gold has always been a safe-haven investment and store of wealth, with gold rising steadily across tens, hundreds and even thousands of years.
It has kept a broadly similar value in relation to goods services since it was very first taken out of the ground and it’s this safe reliability which has seen gold act as solid financial foundation for the wealthy, for nations and for empires across time.
Although gold can fluctuate on a weekly, monthly or yearly basis, making gold a highly popular commodity for trading, gold’s overall trend as an investment has been and remains upwards.
This means that if you buy gold today, you know on average it’ll be worth more in 5 years, 10 years or 50 years than it is now. It’s like it has long-term profit built in – and so simply buying the metal and holding it tends to be a sound investment decision.
Where gold has a significant extra benefit over other investments is where it can develop a sudden volatility during a stock market crash with pricing heading steeply upwards.
During a market crash as paper stocks dive, investment money takes flight from the rapidly dropping shares and looks for a safe harbor. Gold being one of the best known haven investments sees a sudden influx in buyers which causes gold’s price to rise and rise sharply. In the crash of 07-08, gold climbed 25.5% to an all-time high while the S&P 500 tanked 56.8%.
Those with the foresight to own gold were able to sell, take substantial profits and put these back into the now decimated stock market ready for the next inevitable stocks climb and gold’s equally inevitable correction to it’s normal more relaxed rising trend.
How to invest in gold isn’t so much a question of timing – although buying during a correction certainly helps – it’s more one of simply making a decision to buy.
Benefits of Investing in Gold
1. Gold Helps Offset Inflation
As covered earlier gold is an excellent store of wealth and value, being perhaps it’s most significant benefit, and one taken advantage of by sovereign states, nations, corporations, and the super rich as much as regular small-scale investors and gold bugs.
Once used as the basis of all money, first as literal gold coins and later with gold-backed paper currency, gold has since been replaced by slips of paper based on little more than a promise and trust. And yet as banks print more and more money out of nothing it becomes worth less and less thanks to inflation.
A one hundred dollar note from the early 1970’s put into a box and opened now would buy significantly less than it did back in the days of flared trousers and polyester. But had that same $100 been exchanged for a 1oz gold coin, it would have maintained it’s value relative to other goods at the time it had been boxed. While the $100 would now barely get a decent meal and drinks for two, the 1oz gold coin can still pretty much buy what it could have back in the day.
It’s value may have risen when priced in dollars, but in reality it’s buying power remains the same. Gold hasn’t gone up, it’s simply the dollar that’s gone down.
Having cash in the bank isn’t an asset any more – it’s a liability – as every day it’s value relative to spending power decreases.
It has ceased to be money and is simply currency, an easy to use system of payment. Gold is the only real money.
2. Gold has worldwide investment demand
Another key benefit of investing in gold is demand. An important factor in any investment is being able to sell your asset quickly. Gold is universally accepted as a valuable asset, both in monetary terms and culturally no matter where you are in the world.
For smaller investments this demand and competition to buy, means you can be certain you’ll be able to sell your gold quickly and for a fair price whether you’re in a cosmopolitan city or small town.
For larger investments, no matter what happens to the global economy, there will always be a market for gold.
3. Gold is Highly Liquid
Part and parcel to high demand, gold investments are highly liquid. You can buy and sell gold on global markets in minutes or transfer from one vault in one country to another elsewhere through a swap with a few mouse clicks. With well over USD $100bn flowing in daily trade, gold investments are one of the easiest assets for everyday investors to buy and sell.
For small-scale retail buyers, sticking with popular bullion coins such as Eagles or Maples ensures you can sell your gold at it’s true value over the counter at your local coin shop or straight back to the dealer you bought from.
Gold is also quite literally liquid. A kilobar in Switzerland can be melted down to tola bars in Dubai, exported to India, be transformed into fine jewelry, be bought in America, worn for years then melted down as scrap, refined and made into 1oz coins by the US Mint, bought in the UK and so on.
Because it’s so precious gold is rarely lost, just remelted and made into something else.
4. Gold is an Excellent Hedge and Portfolio Diversification Tool
In general when paper markets dive, gold climbs. Not always, but enough to be an accepted correlation and so investors hedge their bets on price movement. If they think stocks will rise, they buy gold just in case the stocks fall. If global markets seem jittery, they’ll buy gold as a safe-haven investment.
The only way to truly safeguard your investments against most scenarios is to diversify – as in the phrase don’t put all your eggs in one basket. After all Enron was once considered a safe investment – as were countless other collapsed banks and real estate funds, silicon valley unicorns and big-box retailers.
Gold just does it’s thing, sitting there like a sparkling insurance policy.
5. Gold is a Portable and Highly Concentrated Asset
Money is both bulky and heavy. $1m in cash weighs anything from 1.1 tons if stacked in $1 notes to 22lb in $100s. Even if packed tightly it takes up a lot of space and as anyone watching Narcos or Breaking Bad will know – with enough paper money you soon run out of places to put it.
When it comes to gold, $1m can be held in just two bars and while admittedly heavy it’s hard to believe that such value exists in two small golden bricks.
For anyone living in a geopolitically risky country there may be a need to exit quickly, leaving behind the bulk of your possessions. A few gold bars about your person and you can have rapid access to cash anywhere in the world and in fact there are bullion bars designed for this very purpose – made credit card sized and perforated into smaller bars for easy conversion to emergency cash.
The ultimate in traveling money.
6. Gold is Inert
Although not a major concern for most investors, gold is chemically stable – it only reacts to a few of the strongest of acids – meaning it doesn’t rust, crumble, break or even lose it’s shine. It’s the definition of a buy and forget asset, sitting without any risk of degradation for decades, even centuries.
Gold has been cast and beaten into ornate crowns and jewellery by ancient civilizations, buried and dug up 1000s of years later – still in the same pristine condition as it was when lost.
We know that paper money when stored in bulk without being correctly wrapped and in the right environment can crumble to dust in a matter of months. With gold, it’s a case of problem solved.
In fact this is one of the main benefits of investing in gold for “preppers” – a cache of gold coins buried underground will last indefinitely.
Silver may tarnish and eventually disintegrate but gold can be left unwrapped and directly in contact with soil until a prepper’s end-game, when the proverbial SHTF.
Disadvantages of Investing In Gold
1. Gold Has No Yield
This is the most commonly cited disadvantage laid at gold’s door – it’s lack of any dividends or interest paid. And while this is a valid if only partially true point, it’s just not a valid problem. Gold simply isn’t this type of asset class – it’s a real asset, as in real estate and other physical investments.
Houses don’t pay dividends. Works of art and antiques don’t pay interest. Neither does land, jewelry, intellectual property, investment wine, cases of whisky or any of a plethora of real assets.
Like gold, most can be rented to produce income and much like gold they typically trend upwards on a long term scale. Gold has averaged 9% annual returns over 45 years – and as a long-term asset it comes with numerous capital gains advantages and tax advantages.
These advantages more than offset a lack of paying interest when looked at against the inflationary devaluation of your dividend dollar.
2. Gold Comes With Storage and Insurance Costs
Again this is true – as a real asset and a valuable, concentrated and portable asset it has to be stored somewhere safe and insured against theft.
But thanks to it’s compact size and the scale and competitiveness of professional vaulting services, these fees are broadly comparable to the annual charges on a managed broker accounts or trading platforms.
And when you consider that paper assets don’t really exist anywhere other than on a computer then what are you actually paying for?
3. Gold Can Be Volatile
In the short term the price of gold can indeed be volatile, but this is mostly due to currency fluctuations and paper trades. Physical bullion is in reality a remarkably stable investment in the mid to long term.
For example gold priced in UK Pounds Sterling can be at an all-time high, and yet when priced in USD it appears to be lackluster and still far below it’s USD all-time best. The same differences can be found when comparing Gold priced in Euros, Australian Dollars or Japanese Yen.
When there are large differences between values in Pound and Dollar, Euro or Yen these local markets benefiting from the upside may start to rapidly sell their paper gold derivatives to take profits or set longer term short bets against the metal sending the price down not only locally but triggering algorithms on the global market. The same can happen when gold in one currency is negatively affected compared to others, and local traders buy or place long bets, sending their local signals global on the open market.
While this volatility of the Forex markets combined with large paper gold trades tend to drive the physical metal spot price this is seldom reflected in long-term demand for physical bullion.
Besides, it’s this short term volatility which leads to gold being a heavily traded asset on both the paper and global physical markets, making traders rich on both price drops and rises.
4. Gold is Not Environmentally Friendly
Is investing in gold ethical? While most Western mines operate to the highest of environmental standards, the same can’t be said for smaller artisanal mines operating in parts of Africa and South America.
Some of these mining methods do involve poison chemicals and can destroy whole rivers with the toxic sludge they generate. The problem doesn’t just affect the landscape, but also the health of the miners and although many of these are illegal and unlicensed mines, there are still enough of them to be a problem.
Added to this, there are a number of mines in war zones. Even though they are officially boycotted by the gold industry, thanks to lax security and a willingness of foreign officials to turn a blind eye, it is sadly inevitable that some conflict gold and other illegal gold will find it’s way into an otherwise well regulated supply chain – and once here, conflict gold is indistinguishable from properly sourced metal when it’s melted into ingots.
But on the other hand, as previously touched upon with gold being so precious – it’s rarely discarded.
Whole industries have been created getting every ounce of scrap gold out of discarded electronics, industrial scrap and broken jewelry. Gold being a pure element is the ultimate in recyclable material.
In terms of work at artisanal mines, there’s a growing fair trade movement sweeping the industry, with the “Fair Trade Gold” seal being applied to more and more pieces of gold jewelry where all parties in it’s production are both paid properly and work in safe conditions. Fair Trade bullion is just around the corner.
In our opinion the pros of investing in gold far outweigh the cons, many of which when looked at are barely disadvantages at all. We are in full agreement that the whole market must become better at self-policing and indeed massive headway is being made in ensuring ALL gold is capable of being tracked from mine to refined bar – along with far tougher action on law-breakers.
See how leading gold dealers are making gold the ultimate in green investment inside Goldco’s free Gold Investor Guide
Where To Start Investing In Gold
The internet has been a godsend to gold investors, making it easier to find both the right information when making investment decisions and to track down trustworthy and reliable gold dealers.
Unless you have a very good local dealer, or even despite of this – we would recommend starting with a web search. First of all you’d be looking for free Gold Investment Guides which will help you not only learn more about investing but also give you some initial insight into what different bullion dealers are like to deal with.
There are currently over 1400 bullion dealers listed in the industry directory and hundreds more smaller companies who are not – so it’s not like you are ever stuck for choice.
Many dealers have excellent websites and free shipping so it’s not a difficult process making a small test purchase. A few silver bars and coins or a small gold bar if you’re nervous and would like to test the water.
Online auctions have become notoriously bad for selling fakes, as have a number of importer sites. It’s best to stick with a known national brand or a trusted local dealer for your first test buy – but if not remember if a product seems much too cheap, there’s a reason for that.
Precious metals are beautiful long-term investments and being a high-cost acquisition, it’s important you make sure your investment journey starts off on the right foot.
Whether you’re buying retail, through a gold investment company or IRA specialist making sure you are both compatible is paramount for smooth and happy investments.
Gold Investing Strategies
Gold has been an investment for thousands of years and investors have held fortunes with the yellow metal in coin, bar, and jewelry form. More recently, other types of gold related investments have come on the market including futures, funds, stocks and ETFs.
There is a time to invest in gold, and we want you to know the best way to invest and when that time is. Just holding gold does not mean you will become rich, if you don’t time the ownership right. But gold is a good inflation proof investment that is also a hedge against stocks as it normally moves in an opposite direction.
There are few things that you can learn:
Gold can be very profitable and can be an easy way to start without a lot of investment as well as the need to store the investment. Gold is similar to other commodities in that it is priced with supply and demand, but has some differences that must be taken into account. Gold is also similar to a currency and the same principals with the forex market apply to gold too.
More than half of the gold mined each year goes into manufacturing processes, mostly jewelry. The other half is purchased by investors and held by nations, the World Bank and the IMF. From 1971 the US got off the gold standard and the dollar became a fiat (backed by nothing) currency. Since then those that were not already fiat have also gone that way but the price of gold has also climbed from $35/oz to the July 2020 price of $1782/oz. Not a bad increase.
When you purchase physical gold and you take possession, the price does not matter until you sell it. If ETFs or futures are purchased what is happening in the market can affect things. Gold is often used as a tool for diversification of the portfolio, making it one of many classes of assets owned. No matter what the asset you purchase the goal is to gain in a certain way. The big difference between gold and stocks is that with stocks there is always a chance that the price will go to zero and the company will be bankrupt. With gold you are paying a premium because there will always be a demand for the metal and this limits the downside risk. Read full details on Gold Investing Here…