Gold is one of the oldest forms of currency. Whether it is shaped into coins or used as bars, it holds its value. Despite it being one of the oldest forms of currency, not any people use it anymore in day to day transactions. However, most people are surprised when they learn it is a popular form of investment. Gold investing is practiced around the world.
That being said, most people don’t know how to invest in gold. If you are interested in how to invest in gold, continue on and we will cover the information you need to learn more about the industry.
For Starters, What Exactly Is Gold?
If you look on an elemental table you will find gold listed as Au. Gold falls into the category of a metallic element. It may be shiny and visually impressive but it is actually soft and easy to form. You can work gold into very thin layers and it doesn’t take much to form even five square meters. A single ounce of gold can be used to form that.
Gold is often used to create jewelry and decorations because of how easy it is to shape. Often times it is mixed with other metals so that it is more durable for regular use. Gold also serves really well as an electrical conductor. Because of this it is used in a lot of electrical parts to enhance conductivity.
All gold is pretty much the same as every other piece of gold. The only real difference is what metal it is mixed with and how much of it you have. Besides jewelry, the most common form of physical gold that is traded on the market is bullion. Bullion is in the form of small tablets or bars of gold.
How Much Gold Is There On The Planet? How Much Do We Have?
Going around the world you will actually find a fair amount of gold. The problem is that a fair amount of it is still in the ground. Gold is difficult to extract from the Earth. Most sea water contains gold as does some river water. The problem with using this gold is that you have to extract it, not an easy task. Even gold in the ground can be hard to extract.
So when it comes to the amount of gold that is present on the planet versus the gold that we can actually use, there is a big difference. There are roughly 244,000 metric tons of gold that we can either extract or are already have extracted. That is only a portion of the gold on the planet. As we develop new extraction methods and new ways to detect gold, that number will continue to increase but the chances we will be able to extract all gold is slim.
How Do We Extract Gold For Gold Investments?
Most people have heard of panning for gold. Extracting gold from rivers by sifting river water through pans. This isn’t an economical way to get gold as it takes a long time. Panning for gold hasn’t been used on a large scale to collect gold since the gold rush.
One of the most common ways to get gold is in the process of extracting other metals from the Earth. Gold can commonly be found alongside other ores when they are extracted, especially when extracting silver and copper.
To mine for gold by itself, a company must first locate where they believe gold to be. Sometimes this is done by going out to likely areas and just searching for it, taking ground samples. More high-tech companies will use artificial intelligence and computers to predict where gold can be found.
Once gold is found a company needs to then receive permission from the government to extract it. Even with all of the technology we have at our hands today, mining is still dangerous. Underground gasses, cave-ins, and other incidents are less common than they used to be but they still happen.
Companies put a lot on the line to extract gold. Until they have started their mine they will not know exactly how much gold is present. Sometimes they will start to extract gold only to find there isn’t as much of it as they had estimated.
Common practice in today’s world is to clean up a mined area once extraction is done. Just like campers, miners are encouraged to leave no trace behind. This helps to reduce the amount of damage done to the planet by mining operations. However, not every country or area requires this to be done.
Mines are very complex operations. They involve a lot of people, a lot of equipment, and a lot of funding to establish. True gold can’t be produced in a lab or created out of thin air. In order to obtain any new old, we have to work for it.
Why Is Gold In Such Demand?
Jewelry has always been one of the largest demands for gold. People want to have attractive, shiny pieces to wear. About half of all gold demand is for jewelry. The next highest demand for gold is investment gold. People and governments want to have safe physical investments and as such choose to invest in physical gold.
Gold for other uses, such as electronics, only makes up a small amount of the gold demand out there. About 10%. While gold is a good conductor, it is not the only metal that can be used.
Gold In The Modern World
In the 1700’s the United State’s passed a standard that stated that the currency of the country had to be backed by precious metal. Either gold or silver. A single dollar was worth about 24.75 grams of gold. To simplify this, consider the currency of the US as just representing a portion of gold.
The standard that required this backing, the bimetallic standard, was repealed in the 1900’s. A number of things led to this shift in thought, including the many changes that happened around the world since the United States was founded. Some people saw the bimetallic standard being repealed as the downfall of precious metals.
They were wrong. Precious metals still play a big role in the modern world. Most banks around the world hold at least a small amount of gold to help secure their wealth. About 1/5 of the gold around the world can be found in banks and other financial institutions.
What Makes Gold Investment Worthwhile? Where Does It Get Its Value?
The fact that gold could be easily worked led to it being one of the first forms of currency. Developing coins and other trade items with it didn’t take too much work. Its appearance didn’t hurt either. Gold also wasn’t very easy to get in ancient times, making it even more valuable than it is today. This led to gold getting a high value.
In other words, gold made a very natural currency. Even when early paper currency came out it was tied to gold. The original paper currency represented an amount of gold held in a vault or at a bank. You could technically bring your paper money back to a bank and trade it for gold. Most people did not do this though because it is easier to carry paper money.
In the modern world, most currencies have lost their connection with gold. That being said, gold still is a valid currency in most countries. Additionally, people still love the beautiful appearance of the metal.
A large portion of the demand for gold comes from people wanting to invest in gold due to its value. When the stock market goes down and the value of the dollar goes down, the value of gold goes up. A small amount of investors opt to invest in gold jewelry. The majority of investors want to get pieces of pure gold (or as pure as you can get) such as coins, bullion, and bars.
Most of those investors believe that if we were to suddenly have a global event or if paper money were to become worthless, that we would fall back to an older form of currency, precious metals. This is very logical, and is the most likely option other than trading for goods. No matter how much you trade, you still need some form of currency. Even after a complete collapse of the economy.
So What Decides The Gold Investment Value?
Okay so we know gold costs money but how does the exact value get set? Gold is like any other item that might be sold on the market. There is a limited amount of it and the price changes based on the availability and demand. The ever so common phrase supply and demand is exactly what sets the price of gold.
Demand for gold jewelry helps to keep the price of gold fairly consistent. If the economy goes down there may be small fluctuations in the price of gold as less people are able to afford jewelry but this is temporary and only small. In fact, many people want to buy and sell gold during a poor economy to help secure their financial status.
People get concerned when the economy starts to dip and want to buy something solid that they can hold in their hands. A brief downturn in the economy might not inspire people to buy gold, but once they see that the economy isn’t righting itself immediately, they want to protect themselves. As they should. This leads to gold being able to hold its own pretty well when the economy continues to dip.
A good example of this is the 2007-2009 recession in the economy. During the recession, the value of the S&P 500 went down over 30%. Gold on the other hand, went up in value by 25%. A big change. This may not be the only example, if you look back in history you will see that this is a regular pattern.
Gold isn’t the only precious metal that outperforms during bad times in the market. All precious metals rise. Gold, however, has a much better value compared to other precious metals. When investing you want to go for the biggest value.
Something to keep in mind is that gold has always allowed you to buy roughly the same amount of goods throughout time. For the most part if you took an ounce of gold in the past and tried to buy something, that same worth would be there today. The only difference is the currency that it is being converted to.
There is one exception to that. Gold in forms such as jewelry and collectors coins can always have a different value than the rest of the market. These pieces are more subjective in value because they are crafted or collected, not just used as a currency.
Why Gold As An Investment And Not Other Precious Metals
As you read through this article you will hear reference to precious metals and you might be wondering why there is a focus on gold. Gold is a great investment metal because it holds its value really well and isn’t hard to get ahold of.
Lesser precious metals don’t have quite the same track record and the value can fluctuate more. Silver is a good example of this. Silver is a great investment for a plan to prepare yourself for the complete crash/shutdown of the financial world. But when it comes to a regular investment, it has mixed performance.
Higher end precious metals on the other hand, are often too hard to get ahold of. You will have to do more work to find them and they are harder to offload. Their value can also fluctuate because there is less demand for these metals. Gold has long been the standard for trading around the world with silver following close behind.
As you can see from the above sections, gold also has a rich history of being used as a currency and a trade tool. This further backs it as the right precious metal for investors.
Some of these investment options are available with other precious metals but it is always advised that you stick with the safest and easiest option. Gold all around performs well. Very rarely do investors end up having a problem with it.
How To Invest In Gold
You have a number of options when it comes to investing in gold. We are going to start by looking at some of the most common ways that people answer the question of how to invest in gold. Starting with investing in jewelry.
Investing In Gold With Jewelry
Many first-time gold investors decide to start their investments by buying jewelry. Jewelry is very easy to acquire but can also be very difficult to trade in. You need to ensure that you are getting gold that is at least 14 karats. Most jewelry will also have a pretty high markup due to the fact they are pieces of art not investment items.
Gold jewelry rarely reaches 24 karats because the gold at that point is too soft. You don’t want jewelry that will break too easily. When buying jewelry for investing in gold is often done by looking for some of the most expensive pieces. Besides having a high karat count, you also want it to appear nice.
Physical Gold As A Gold Investment
One of the most popular gold investments is to buy physical gold such as bullion, coins, or gold bars. Having something physical to hold means that you always have it at hand if you want or need it. As long as you buy from a legitimate seller, the gold will also be far purer than jewelry gold.
Physical gold does have downsides though. It can be difficult to liquidate physical gold if you don’t have a local gold buyer. Additionally, you have to worry about storage. If your physical gold is stolen, it is stolen. Most insurance companies will not cover precious metals stored at home. Collectible coins will also come with a markup.
Gold Certificates As A Gold Investment
You can also opt to buy gold certificates. These are certificates that you own certain pieces of gold that are stored at a company. You don’t need to worry about storing the gold and still get a gold investment. When buying gold certificates you need to be very careful to buy from a reliable backer. The number of companies that offer gold certificates is very limited.
Gold Investments In The Form Of Gold Mining Stocks
A way to invest in a gold mine is to invest in gold mining stocks. You are basically backing the mining company and the prices of gold mining stocks follow the gold industry and the performance of the company. Gold mining has its risks though, remember it’s a dangerous business and this factors into the investment.
Future Contracts For Gold Investing
When you buy a future contract you are looking to buy gold that will be delivered at a later date. Sometimes this is from a gold company sometimes it is directly from the mine. The gold is bought at a set price and delivered later. It does have its downsides as you do have to trust the company to deliver on your gold investment.
Gold ETFs As A Form Of Gold Investment
Stock markets around the world trade funds that change based on the price of gold. With a gold ETF you a highly liquidated investment. There are often numerous fees involved in investments of gold ETFs.
These funds invest in gold for their shareholders so you don’t directly own the gold. You own a portion of the overall gold in the form of a electronic fund.
Mutual Funds To Invest In Gold
A mutual fund in gold is a collection of mining company stocks that are all pooled together. You get less risk by investing in a gold mutual fund because there are multiple companies. If one fails, you don’t lose your whole investment. You can find mutual funds from a variety of sources.
Gold Investing By Allocated Gold Accounts
An allocated gold account is similar to a traditional bank account. Instead of storing cash in your bank account though, you store real gold. In an allocated account you own specific pieces of gold. These accounts are typically only offered to those with high net-worth and not every bank offers these types of accounts.
There is another form of these accounts known as unallocated accounts. In an unallocated account you own a portion of gold but you do no own a specific piece of physical gold. These accounts can be somewhat merky as the gold is more of a credit from the bank.
Different Forms Of Physical Gold For Investment
Several different types of physical gold exist when it comes to investing in gold. One of the most common types of physical gold is bullion. Most bullion takes the form of a slip of gold. A miniature bar that is made up of .999 purity gold.
Gold coins can also be considered bullion. A bullion coin is a standard piece of gold that is commonly trade. In general the purity is the same as a slip of bullion.
On the other hand there are numismatic coins that can also be invest in. These coins have more value than just the precious metal that they contain. That is because these are the type of coins that collectors trade in. While they may be a great option for when the financial world is doing well, if you want to be safeguarded, they are not a good option.
If the financial world isn’t doing well, buyers are looking to pay for the precious metal, not the collectors piece. This can make it hard to get the full value of a numismatic coin.
Where To Buy Physical Gold As An Investment
For those that want to buy physical gold as an investment, they want to know where to go. You have a wide variety of options. Buying from the internet is a modern option that a lot of people choose to go for. When buying online, you want to make sure that you buy from a reputable seller.
A better option than investing online is to find a local gold store. Most cities will have some form of gold or precious metal store. Sometimes these stores will be a part of jewelry store or a pawn shop.
Typically, the safest option to find a physical investment in gold is to go the US Mint. You can buy several different gold options directly from the US Mint. The mint tends to have a lower markup and is a reputable dealer. They won’t try to scam you.
Before buying physical gold you should come up with a plan for storing it. At the very least you should invest in a home safe. This will help to reduce the chances of someone getting access to your gold. You will want to look for a quality safe that can be bolted to the wall and isn’t easily countered.
Finding a safety deposit box is another option. If you decide that a safety deposit box is how you want to store your gold you will need to consider two factors: the monthly cost of the safety deposit box, and the trust you have in the bank. You want to pick a bank that you can trust.
As mentioned elsewhere in this article, most insurance companies will not insure gold or other precious metals kept on your property. It is important to contact your insurance company beforehand and discuss it with them. Those insurance companies that will insure it will want to verify the purity of the gold and the amount of the gold.
Insurance is crucial when storing gold in case of damage to your home and property or in case someone breaks into your home. This is especially true if you are looking to store a large amount of gold at your house.
Another Way To Invest In Gold: Gold IRAs
Another option for gold investment is a gold IRA. Like traditional IRAs, gold IRAs are designed as a long term investment. Over time you add more gold into your retirement and then when it comes time to retire you can start to sell it off.
You can even rollover a traditional IRA into a gold IRA investment.
Gold IRAs involve investing in physical gold. You find a company that sells gold for IRAs and then arrange for it to be stored with a custodian. Almost all gold IRAs require your money to be stored at a secure facility instead of at your home. This is partially for security and partially for the fact that you aren’t supposed to sell off your IRA until you retire.
Another thing to consider when looking at gold IRAs is that there are only certain types of gold that are allowed in an IRA. Bullion is the preferred investment method for an IRA. You can also invest in certain gold coins. Not all coins are eligible for investment in a gold IRA. Keep this in mind when shopping. The limit in gold investment options is one of the reasons that it is always best to shop with a company that has experience working with gold IRAs or specializes in selling gold for gold IRAs.
Investing in gold with a gold IRA is a very good option for investors as it allows you to invest in real gold that is secured for you. There are fees involved in the investment but they are typically minimal, especially if you spend the time to look around for the best sellers and custodians.
How Should An Investor Invest In Gold?
Investing in gold is something that takes a fair amount of research. There is no option that is perfect for every investor. Each option has pros and each option has its cons too. Look at the option that you want to invest in and determine which one is right for you.
Gold isn’t a completely safe investment. There is no investment that has a good return that doesn’t have risk. For this reason it is highly advisable that you do not put all of your eggs in one basket. You want to have a good mix of investments.
The most common reason to have a gold investment is to protect yourself when your other investments fail. That means you need to have other investments that have the potential to give you a payout. You should also consider the ability to liquidate gold, it isn’t that easy to liquidate gold at a moment’s notice. Especially since you want to sell gold when the prices are favorable for you. Most investment experts say that you should keep your investments in gold to around 10-20% of your portfolio.
In addition to this you want to determine your purpose for investing in gold. Are you looking for a long term retirement plan? Or are you looking to have a precious metal should the financial market completely collapse? Some investors are also just looking for a way to make money over time with no specific goals.
The reason this is important is that there are numerous forms of gold investing that don’t actually give you gold in hand. For investors that are looking to have a safety net that they can access at any time, having gold in hand is an important consideration. This is typically where physical gold is most popular.
At the same time, just stashing some physical gold under the bed may not give you the best return rate. Most of the other options have a bigger return rate but come with a little more work. This consideration further ensures that there is no one option that is right for everyone who is looking to invest in precious metals.
Those who are looking to invest in gold should take their time when making the investment. Not only do you want to pick the right type of gold investment for your needs, you want to make sure you buy at the right time. Gold prices fluctuate and you want to do your best to buy gold when it is at its lowest price.
Doing some research into the history of gold prices will help you to predict when it will be the best time to buy. You should keep in mind when buying that prices will always fluctuate, if you buy when it is low and it dips even lower, don’t stress out. Gold has dipped in the past but it always comes back up.
One thing to keep in mind is that with some gold investment options, there is no immediate need to plunge all of your money in right away. For some it may be better to build up your portfolio over time so that you always have your money available for when you need it.
It is important to consider if it is the right time in your life to be investing in gold. If you already have investments set aside and are just looking to diversify your money, it may be the right time for you. However, you don’t want to invest in gold immediately if you do not have the money to spare. Always take your finances into account when investing in anything.
Keep An Eye On Your Investment
An important note is that you should always keep an eye on your portfolio. Investments grow and shrink over time and you may come to a point where your gold investment is a higher percentage of your portfolio than you want it to be. If this point ever arrives it is time to decide whether you want to sell a small portion of your gold or you want to keep it as a continued investment.
Say gold is having a really good year and it is up to 14% of your portfolio and your original goal was to keep it at 10%. You may want to consider selling off around 4% of your gold investment so that gold isn’t overwhelming your portfolio. You can always invest the profits elsewhere in your investment portfolio.
Investing in gold is a choice that has to be made by each investor individually. It is a great way to hold money in case of a recession or depression in the financial world but it doesn’t come without its risks. You also want to ensure that you have enough money to make your starting investment. Consider all of the factors before making a decision.
It doesn’t hurt to go see a financial consultant if you are unsure of how to work gold into your current investment portfolio. They can help you to find a way to diversify your savings with precious metals while not putting too much at risk. Plenty of content on the internet is also available when it comes to investing in gold and other precious metals. Remember, an educated investor is a good investor.