Commodity Investing: Your Guide to Gold

Investing is a great way to make a passive income and increase your overall net worth. There are a number of different asset classes to choose from, but commodity investment continues to be a popular choice among both novice and experienced investors. One commodity that has really stood the test of time is gold. Investing comes down to supply and demand; gold continues to see a high demand which is why it is still a worthwhile investment. There are a few different approaches that you could take if you are interested in investing in gold, so let’s take a look. 

Why Gold Continues to be a Good Investment

Gold has long since been a coveted material, and it has a long history in the economy of a number of countries with ties to several currencies. Nowadays, however, gold is valued for other reasons, and it is still a great investment option because it does tend to produce reliable results even during times of economic hardship, unlike many other assets which lose their value. This is not to say that you should expect the value of gold to fluctuate somewhat in the short term, but over time it does still tend to outperform a lot of other asset classes – even property. Although, it is worth considering the storage cost of gold if you plan to hold the asset physically over time. 

Interestingly, gold also tends to see a rise in value during economic recessions when the cost of living increases. This makes sense as the value of gold increases alongside a general price rise. Gold is also a great asset to diversify your portfolio with. This is because, while there are fluctuations, the value of gold doesn’t move as much or in the same way as other asset classes. It also isn’t usually affected by dips in the stock market, although this is not a hard and fast rule, so bear that in mind. Depending on where you live, there may also be some benefits to investing in gold in terms of tax advantages. Of course, you will need to do your own research here to work out whether or not your investment efforts are eligible. 

Buying Gold

When it comes to buying gold, you have a few options. Regardless of the route that you take, it is worth using a service like Trading View, which has this XAUUSD chart that allows you to track trends and make informed choices. Firstly, you can buy the gold physically in the form of jewelry, bars and coins. Coins are occasionally worth more than the value of the gold content because they have a numismatic value. Bars, on the other hand, tend to only be worth the value of the gold content that they possess. Sovereign mints have the benefit of being government regulated because they are linked to legal tenders; however, the markups do tend to be higher than private mints. Jewelry is another option, although this is often riskier because its value hinges on more than its gold content, although this is also important. The era that it was made within, the rarity and the design all contribute to its value. Physical gold can be a great way to pass down wealth through the generations instead of leaving money; however, depending on where you live, it may or may not be exempt from inheritance taxes, so this is something that you will need to consider. 

The next option is gold investment funds. They are often a great alternative to buying the gold physically, which does often represent more of a hassle. It also tends to make more sense to invest in this form of gold if you only want to keep the investment for the short term. Finally, gold investment funds are also usually a better choice for those on a budget because you obviously do not need to purchase entire coins, bars or jewelry or pay for the storage either. When it comes to gold investment funds, there are two options: ETFs and ETCs. ETFs, or exchange-traded funds, buy and sell the gold or its futures, which does mean that the investors do essentially own the gold without ever having it physically. ETCs or exchange-traded commodities are debt notes backed by gold. Both options are designed to track the value of the gold and can be easily bought and sold via investment platforms. As an investor, you can hold them in an ISA like a stocks and shares ISA, which offers tax advantages because it protects the investor against capital gains tax when they come to sell. However, there are often fund fees when you choose to invest in gold investment funds. This is because most funds are managed extraneously by others, and so there are management and administrative tasks. 

Finally, you could also choose to invest in gold via buying shares in gold-related businesses like mines. However, it is important to emphasize that this is definitely better suited to more adventurous investors. The price of the shares will not always go hand-in-hand with the price of gold itself as a commodity. There are several external factors that can affect the cost of the shares, like the management of the business and whether it is effective or not, the productivity of the mine and the geopolitical stability of the countries where the mines are located. All of these factors can either increase or decrease the value of the shares. In order to offset some of the risks of this option, you should do your best to diversify the risks by investing in different companies with multiple mines across a variety of regions. Otherwise, you leave your portfolio open to volatility, instability and risk. 

The Risks of Investing in Gold

As with any investment, there are risks to investing in gold. The biggest being price dips. In the end, the price of gold relies on the sentiment of investors. When the demand increases, so does the price, but if people stop buying or it falls out of favor, then, of course, the price is going to drop. However, a well-rounded portfolio needs to be diverse anyway; limiting the percentage of gold in your portfolio is the best approach. Speaking of diversification, while you can diversify your portfolio in general by investing in multiple different asset classes, it is hard to diversify your gold holdings themselves. 

Gold also is not a fixed-income form of investment, unlike corporate bonds or gilts. This means that gold has no yields, so you only see returns on your investments or profits when you decide to sell your holdings. Finally, if you choose to invest in physical gold, then you also have to consider how much the storage fees will cost you and whether the investment will therefore be worth it. In the worst case, you could end up paying out more to store the gold than you make when you come to sell it. 

To Conclude

Investing in gold does present unique possibilities to any aspiring investor. The sentimentality of the buyers does have a significant effect on the value; however, gold has been consistently popular for centuries, which does seem to offset a lot of these concerns. There are a number of options when it comes to investing in gold, of course, the best approach for you will depend on your financial situation and your investment preferences too. Remember to avoid sinking all of your money into gold exclusively; instead, using it as a diversification tool.