Did you know that gold has been used as a currency for centuries? From ancient Lydia in 643 BC to modern times, gold has always been a symbol of wealth and prosperity. But have you ever wondered if it’s still possible to invest in this precious metal in the 21st century? If so, how to invest in gold?
The good news is that gold is still a valuable asset and an attractive investment option, even in today’s world of digital currencies and paper money. So, if you’re curious about how to invest in gold, let’s dive into the details!
Why would you even invest in gold?
Gold may be associated more with jewelry these days than real currency. However, central banks and various other financial institutions (and many individuals) around the world still hold on to it and continue to build gold reserves to protect themselves against economic shocks.
For instance, back in August 2020, the price of gold hit a new record high of $2,067 a troy ounce, when investors were looking for an escape from the financial crisis caused by the COVID-19 pandemic. Although it might not keep the same price today, this example just goes to show how investing in gold could pay off even in the midst of a global economic disaster.
Here are some reasons why people invest in commodities like gold:
Investing in gold diversifies investments
Gold is unique in that its price is not normally affected by financial markets, making it a welcome addition to a diversified portfolio. In fact, due to gold being priced in US dollars throughout the world, it actually benefits from otherwise negative situations, like a weakened dollar or higher inflation.
Investing in gold can hedge against inflation
As central banks continue to print money, the value of your cash savings erodes over time. However, gold will always be gold.
For example, the price of an ounce of gold when the US dropped the gold standard was set at $38. Fast forward around 50 years, and an ounce of gold today can probably buy you the latest iPhone and all its accessories, whereas $38 might only be able to get you a phone case due to currency inflation.
Investing in gold can generate income
Investing in dividend-paying gold stocks can offer an income-generating way to invest in gold. Even investors focused on growth, and not income, will notice that gold stocks typically have a higher ROI than actual gold.
Investing in gold can be a safe haven
In times of political or economic uncertainty, investors often turn to gold as a safe haven that can effectively protect their wealth. Gold is even used as a means to escape direct danger. We never wish to get caught in these situations, but it’s good to know that gold could help us through.
Disadvantages of investing in gold
With all this said, the unique characteristics of gold that make it such an attractive investment also present some potential downsides to owning or investing in the precious metal. These include:
Gold requires physical storage
Unlike other commodities, gold doesn’t just disappear due to consumption, and so almost all of the precious metal that is mined from the earth ends up being stashed away somewhere. Whether your gold comes in the form of jewelry or heavy coins and bars, this means two things: that the supply of gold is increasing and that you would need a secure physical place to store it all in.
Potentially higher taxes
In the US, physical gold is classified as a collectible on which the capital gains tax is 28%. This is a lot higher than the regular 15% capital gains rate. Although, it should be noted that mining companies not directly invested in gold can still benefit from the lower tax rate.
Physical gold itself doesn’t earn income
While the value of a piece of gold might increase, it will always remain just a lump of metal. It doesn’t produce any income, as a dividend-paying stock might until you decide to sell it at a greater price than what you originally paid. How much you eventually earn from gold essentially depends on the price that your buyer is willing to pay.
How to invest in gold
There are several ways in which you can invest in gold and each has its own set of advantages and disadvantages. Before you choose an investing vehicle, make sure to consider factors such as exposure, liquidity, and fees.
Physical gold
If you’ve been thinking about investing in gold, chances are you have considered the idea of buying physical gold. The idea is not that crazy actually, as it is pretty common to buy jewelry, collectible coins, and bullion bars as a form of investing.
Nowadays, you can buy physical gold from pawn shops or reputable gold dealers. It’s a classic choice, and for good reason: physical gold is still a valuable and sought-after commodity.
Nevertheless, while it can be satisfying to hold a shiny gold bar in your hand, there are additional expenses to consider when it comes to storage and maintenance. And with so many other investment options available to modern investors, physical gold may not be the most practical choice.
Gold stocks
Gold stocks are shares of companies that are involved in gold production. Most gold stocks are related to either gold mining or providing upfront financing to gold miners, which is known as gold streaming.
A great advantage of investing in gold stocks is that you don’t have to worry about the hassle of storing and maintaining physical gold. Additionally, some gold stocks also pay dividends, which could be a great way to earn extra income.
However, an important downside is that gold stocks may not hold their value during times of crisis as physical gold does. In times of global events that affect the financial markets, like the COVID-19 pandemic, physical gold can still be traded for goods and services. In this scenario, gold stocks may not have such an easily exchangeable value due to their less liquid nature.
Gold ETFs
Another way to gain exposure to gold without the need to purchase and store the physical precious metal is through gold exchange-traded funds. Certain gold ETFs track the price of gold, whereas others invest in companies operating in the gold-mining industry.
Think of a gold ETF as a basket of stocks from different gold companies. By investing in an ETF, you can add several companies to your portfolio with just one transaction. This means that you won’t have to go through the trouble of researching stocks from each individual company.
One of the best things about gold ETFs is the diversification they provide. Unlike investing in a single company’s stock, gold ETFs allow you to spread your investment across multiple gold companies. This helps to minimize the risk of losing your investment due to the poor performance of a single company.
Overall, if you’re looking for a smart way to balance risk and reward in your portfolio, gold ETFs could be the way to go.
How to start investing in gold
Thanks to online investing platforms, millions of investors have found practical and easy ways to invest in gold. When considering how to invest in gold, the simplest way may always seem to be through gold stocks and ETFs.
One of the best platforms to invest in gold stocks and ETFs is FlexInvest. You can choose from hundreds of offerings from US and global markets, and even tailor your search to your gold quest. The best part is that its platform includes fractional shares that allow you to start investing with only $5.
As we’ve noted above, there are many reasons to consider investing in gold, and FlexInvest makes the whole process easy and hassle-free. Gold stocks and ETFs are a perfect way to add this precious metal to your portfolio without worrying about tedious storage and maintenance costs.
