Gold has a long history of trade throughout the world. It is one of the default currencies when other types of currency don’t work or fall into a period of decline.
Due to the value of gold, many people choose to invest in it rather than other forms of investment such as stocks and shares. Gold can be passed from one generation to the next and can hold sentimental value as well as physical worth.
This precious metal doesn’t corrode and is easy to form into coins and jewellery pieces. It means that there are many different ways to buy and own gold, whether individuals are looking to invest a significant amount of money or a smaller amount to build up their collection.
In this article, we’ll look at why so many people choose to buy gold as an investment and the things that could impact your decision when it comes to investing in the same way yourself.
Is gold a good investment?
Gold is one of the few items that can be accepted as currency in most countries around the world. Unlike standard currencies, however, gold is not impacted by interest rates and cannot be replicated to meet demand. This means that gold can maintain its value and is a good alternative to paper or digital money in times of economic struggle.
The precious metal is rare, which makes it very valuable. Many people choose to invest in gold and wait for the value to go up before selling it to make a profit. Gold often appreciates in price whilst inflation rates rise and currencies decrease, which makes the metal a good hedging asset for individuals who are worried about their finances.
Continue reading to find out the factors of gold investments that you should consider, including the benefits and drawbacks, the various types of gold that you can buy and the changing price of gold.
What are the pros and cons of investing in gold?
Gold has been used as currency and trading assets for thousands of years around the world. Whilst other stocks, shares and currencies may decrease in value, gold is able to retain its worth and desirability in times of financial worry. This makes it a safe haven that individuals can use as a safety net if they are worried about the loss or deprecation of their other assets.
Inflation pushes the price of items up, which is partly caused by banks printing more money. However, there is a finite amount of gold which costs gold mining companies time and money to mine more, which is why gold retains its worth whilst inflation could affect the economy, stock market and the monetary value of products. Investing in the gold market is also fairly simple when compared to other types of investments. For example, it can be difficult to work out the value of individual shares and there is the additional risk that the share will lose its value or the company will fail and the investors will lose their money.
Many people also like to invest in things that they can physically see. Modern forms of investment such as stocks, bonds and shares are digital, which means that they can only be viewed by logging into an account online. Gold, whether it be in the form of bullion or jewellery can be physically held and stored, which can be appealing to individuals who are wary of digital investments.
One of the drawbacks of gold also correlates with its benefit – the precious metal is expensive. It can be difficult to buy a significant amount of gold due to the high price, especially when combined with the additional costs of storage and insurance. Storing gold can be a challenge, as there has to be suitable security to protect the items. The gold will also need to be transported to and from storage, which requires extra costs and protection too.
Another problem with investing in gold is the trading aspect. It’s important to buy and sell from trustworthy sources as they will acknowledge how much the gold is worth and won’t try to cheat the customer. The process of buying and selling gold can take longer than trading electronic assets especially if the gold object is particularly rare and requires specialist input.
Individuals are required to pay tax on the profit that the sale of gold made. This means that if a gold piece is bought for £100 and sold for a profit of £150, the individual will have to pay Capital Gains Tax on the £50 difference. It can be difficult to keep track of the sale of every gold piece, which is why it’s important to keep receipts of the amount that a piece was purchased or sold for tax purposes.
When is a good time to invest in gold?
The price of gold can change over time, although its value has reached a record high in recent years. Gold reached its highest value in the UK during 2011, when it was valued at 1,574.37 GBP/oz. The price of gold has been steadily increasing over the last few decades, although it has started to drop in recent years, which many people see as a good opportunity for gold investing. Gold is expected to rise in value in the coming years, perhaps even surpassing the value of 2011.
Gold prices tend to have the lowest value when the economy is stable and trust in currencies is at a high. The precious metal can still steadily increase over these periods, but at a slower rate than in times of economic struggle. Many people decide to invest in gold when the economy is strong as gold prices are low, which means that they have the gold in preparation for when the prices increase at times of national financial difficulty.
How can I invest in physical gold?
There are various ways of owning physical gold for both investment purposes and personal pleasure. Gold comes in various forms, although the three main types of gold investment are jewellery, bullion and coins. Gold investors can also choose to buy gold stocks, but physical gold gives investors more control over their assets as they can choose where to store it and who to trade with.
Most people will think of gold bars when they think of gold investing. Gold bullion comes in a variety of sized bars, from a few ounces to several hundred ounces. Unlike stocks, it’s not possible to get a fractional share of gold bullion, which means it can be a very expensive way of buying gold for investment.
Gold coins have been used for trade for thousands of years, although nowadays they are mostly used for investment rather than currency. There are various types of collectable gold coins, such as designs that commemorate famous people or events. This means that they often have historical interest as well as financial worth which can often increase the price past the physical value.
One of the most popular ways for individuals to buy gold is in the form of jewellery. Buying and owning gold is more accessible in this form because jewellery is sold on most high streets, which means that individuals can build up their collection gradually. It can be risky buying gold jewellery as most individuals choose to wear it, which leaves it vulnerable to thieves, damage or simply getting lost.
If you want to invest in gold in other ways then there is also the option of investing in companies that mine gold, or those that refine and trade in gold. This kind of investing is generally a little riskier, as the success of the investment is tied to the performance of the company.
Gold is a good investment because the precious metal retains its worth, whilst stocks and shares can be volatile. It can be bought and sold in countries all over the world, which makes it easier to trade than currencies, which have to be exchanged. The precious metal isn’t affected by changing interest rates and is a good safety net for when the economy is going through a bad period because this is when gold has its highest value.
Gold can be bought in three different forms – bullion, coins or jewellery. It can be difficult and expensive to store and transport gold, which is why some individuals choose to invest in gold stock instead.