I get asked a lot about investing in gold, where to purchase it & what types of gold you should be buying if you want to make some money.
There are many dangers & pitfalls you need to keep an eye out for if this is one of your chosen vehicles to part your cash with.
Back to that in a moment. Firstly I want to give some reasons why you may consider investing in gold.
1) It can be used as an exchange value like it has been for thousands of years
Ever since 1200 BCE Gold has held its value when the Chain civilisation of Peru used gold in castings to the Egyptians in 5000 BCE & since the early days of civilisation.
Today gold holds aesthetic value and currency & is used in jewellery and bought and sold by millions of people worldwide.
2) It is a good store of value
Despite highs and lows and ebbs & flows gold will unlikely lose it’s value over the long term, despite market fluctuations. Regardless of where you are in the world, it is always likely to be used to exchange goods in place of physical money and hold its value.
Since the 1970’s, the price of an ounce of gold has shot up from £14.52 to a ridiculous all time high of £1148.85 (2012) & currently at £1007.72.
That is a huge growth in value. It’s very unlikely you would ever get that type of growth from paper currency or coins.
3) Gold can be used in emergencies
Take the unlikely example of the UK banks shutting down and there was a state of emergency and they refused to give your money, you would still be able to use your gold as money for necessities. You would be able to barter or melt down & swap for cash with someone who had liquid reserves.
4) Hedge against inflation
Gold one of the best investments to use as a hedge for inflation, because as the price of living increases, gold does too. Over any 50 year period, you will often find that where high inflation has occurred, gold has usually surpassed it.
Even during the great depression of the 1930’s, gold still spiked in value. Can you see why this is such a great asset?
5) Gold is finite
People wrongly assume hundreds of thousands of tons of gold are produced every year, the reality however is that only around 50 million try ounces are? In real terms that equates to 14 cubic feet, not a massive amount V world demand.
With the laws of supply and demand, many will know that once something is scarce, hard to obtain & finite, it will likely rise in value. The same is with gold.
6) Diversification
Although many investors will have money in assets, stocks, businesses and property, they will also have capital tied up in gold as this is great for asset diversification. When there is trouble or volatility elsewhere like the stock market, gold tends to rise.
4 main types of gold you can purchase
Here are 4 main types of gold you can buy for positive return if you're a smart investor:
Gold bars or bullion’s - You may have seen these brick like gold bars in the movies when there is a robbery or a heist. These are usually the Creme de la Creme or the mac daddy of physical investments. The Biggest downside is that you will have to pay to have it insured or stored.
Gold coins - These are great for first time investors as they are small & less pricey. They don’t usually need to be stored in a big vault and can be kept safe at home.
Gold stocks & shares - You can even purchase stock in a company that produces gold & get paid dividends on the shares, a good fund that invests in these companies is M&G Gold and General.
Gold jewellery - If you’re like my business partner Rob Moore who mixes his passion with investing with watches, the same can be done with jewellery where you can enjoy wearing them or use to barter with in the future. A great tip is to buy jewellery as close to the melt down value of the gold content. Gold therefore has an intrinsic value which is likely to endure through time.
Other ways to invest in gold could be with gold futures, options and an exchange-traded fund.
What % of portfolio should be held in gold?
Although there is no hard & fast rule, it all depends on how you feel about the market, how comfortable you are with volatility & your overall financial needs and timeline.
When is the right time to buy Gold?
When inflation is expected to take hold & force down the value of currency or where there are political problems which force capital to come out of the stock market and seek safe harbour in times when the system gets shaken up like Brexit.
The earlier you can detect drops, the more room you have to make a profit. If high inflation or economic volatility is not expected there often not that much room for the price of gold to rise
Increased demand from markets that require gold, such as jewellers - considering investing in gold to benefit from the potential price pressure which will also force the price up (natural supply and demand).
How much should you invest in gold?
This is one of those ‘how long is piece of string’ questions. But I think around 3-4% of your net worth should be invested in gold. Because if you really think about it, you're actually losing money year on year with inflation with savings in the bank.
Where to sell gold
There are several ways you can sell your gold depending on what type of gold you actually have.
You can sell the stock when the market is more demanding or when currency is plummeting, physical bullions, coins, bars through brokers or privately & physical jewellery directly to a buyer (person or a shop)
Advantages of buying gold
- Liquidity
- A store of value
- Its a hedge against inflation
- University understood
- Less risky than other investments
Disadvantages
- No income
- Can Become overpriced in a bubble encouraging a sharp correction
- Physical gold can be damaged/stolen/ and need to be stored &insured
In conclusion, there is a good argument to investing in gold & I would have a small % of your net worth in the asset as it offers the chance to increase your wealth (or at least preserve), it offers a great opportunity to diversify your assets if your assets get devalued in other markets.
