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So, You Want to Invest in Gold?

Martin Castilla            No comments            Feb, 12

Precious metals have been one of the cornerstones of the human economy for thousands of years. They are rare and more difficult to obtain than base metals, and that’s why they have a higher value as well. Metals like gold, silver and platinum belong to this group, with gold being probably the most used and traded throughout history. Investing in gold and keeping gold bars in a vault might sound a bit old-fashioned, but there are reasons why having a few ounces of gold in any form is not a bad idea at all.

Why should I invest in gold?

The main reason why people go for gold is that its value is stable. This is important in times of economic crisis, inflation, war or other events that can have unpredictable consequences. During these times, gold and other precious metals don’t lose value in a way that bonds, stocks, money and other securities do. Not just that, but its value generally rises whenever there is some kind of social and civil unrest, since the demand for gold goes up. This happens because in case of a complete social breakdown, money or bonds may end up having no value at all, unlike gold.

In a way, buying gold is not really an investment, it’s more of an insurance policy. You don’t really spend money on gold, you’re just transforming your savings to another form, much more solid and stable. However, it’s not as simple and easy as it might seem at the first glance. There are a few the things you should know about investing in gold before you plunge into it.

Gold bullion

The most common forms of real, physical gold are bars, ingots and coins. In the world of gold trading, they all fall under one term – gold bullion. They can be bought either from a government agency, or more commonly, from a precious metals dealer. Usually, they are made completely of gold, with purity above 90 percent, or sometimes much higher.

Normally, the price of bullion is tied only to the price of gold, meaning that it depends only on supply, demand and other economic factors that affect the current value of gold. However, sometimes it’s not very practical to ship it and you have to pay insurance, holding and custodial fees, especially if you don’t want to keep the bullion at home.

Numismatic coins

Same goes for those coins whose value is higher than its simple melt value. This is because they are in some ways special – either because they’re a part of a limited series, being used as a proof or because they have a historical significance. What’s special about trading them is that their price tends to change more radically. In the times in which the price of gold rises, the price of rare coins goes up even more, and vice versa. When buying these, you have to be very careful. Always have a reliable expert that will make sure you don’t get cheated. Also, never rush to sell them. Make a thorough research on their value, consult the experts and go to multiple dealers to get the best price.

Unallocated gold and exchange-traded funds (ETF)

You can also choose to invest not in actual gold, but in securities that can be substituted for gold or for cash. There are numerous benefits to this, since you don’t have to pay insurance, custodial fees and shipping, since you don’t own, buy or sell actual gold. One of the ways is to buy “unallocated” gold that bank will use for its own investments. What you get from the bank for your money is basically the promise that if you decide to sell the gold, you’ll get the cash, and if you decide to take the actual gold, they can transfer it to an allocated account.

Another way to go is gold ETF. Basically, you buy stocks whose price is tied to the price of gold. So, you don’t really own any gold, but gold contracts and derivatives that can be exchanged for cash. The downside of owning ETF or unallocated gold is that, at the end of the day, all you have in your hands is a piece of paper that could lose its value in turbulent times. If the point of investing in gold is gaining stability and security in times of potential turmoil, then real, palpable gold is the best option.

At the end of the day, whichever of these you choose, be careful, always perform detailed research yourself and watch out for scams. Beware of the dealers who offer free storage and delayed delivery, and be careful when paying with a credit card. Investing in gold has many benefits, but if you’re doing it sloppily it might turn out to be a disaster.