With all the uncertainty in the market these days, many individual investors are looking for a safe haven to keep their money safe. One of the most popular investments that match this criteria is investing in gold. However, investing in gold is much different than investing in traditional stocks and bonds, so here is what you need to know.
Why Invest In Gold?
Investing in gold has historically been seen as a hedge against inflation. With interest rates at record lows and the Federal Reserve printing money to pump up the economy, inflation seems to be an inevitable outcome. Whether it is sooner or later, many gold investors are sure it will happen. Gold tends to perform well during periods of high inflation.
Second, gold is seen as the currency of last reserve. A lot of skeptics have hinted that the entire banking system could fall apart with all the uncertainty created by Europe and the mishandling of the economy by the Federal Reserve. While this seems very unlikely, all events that drive this fear also drive up the price of gold.
How To Own Gold?
There are several different ways to invest in gold. You could buy gold coins or gold bars and store them. Or you could buy these same coins and bars and have a third party company, such as Lear Capital, store them for you. This second option allows for easier buying and selling, since the gold is already in possession of the broker.
If you don’t want to own physical gold, you can also invest in a gold ETF. This ETF attempts to mimic the daily spot price of gold, so you get the same price without owning any actual gold. This works well if you are using gold as a hedge against inflation, but it isn’t an option for individuals who want to own gold as a last resort currency.
Finally, you could also invest in gold producing companies. This is a slightly different investment since you own an actual company, but these companies tend to post higher profits when gold prices rise, and so you do get a similar effect to owning gold.
Drawbacks to Buying Gold
One of the biggest drawbacks to owning gold is the fact that gold is a commodity, and as such, its only value is the price that other individuals are willing to pay for it. It pays no dividend, and doesn’t have much use other than to be traded, or made into jewelry. Unlike owning a stock, when you own gold, you just get the yellow stuff. There is no profit or assets behind it. If, someday, the world decided that gold wasn’t valuable, it just wouldn’t be valuable anymore. That is a big risk.
Second, owning physical gold has the drawback of needing to be stored. An option mentioned above was keeping it stored with your broker, but that isn’t always an option. You may need to invest in a safe deposit box at a local bank, or even a safe at home, to store your gold. This is a costly expense that isn’t necessary for other assets.