Why You Should Not Invest in Gold

Why you should not invest in gold

Gold has long been seen as a sign of wealth and safety during times of political and economic upheaval. Investors can purchase physical bullion, futures contracts or gold mining stocks as a hedge against its price rising and turn profits.

Funds and ETFs offer beginners an easier path into investing, but there may still be potential drawbacks to consider.

1. It’s a speculative investment

Gold’s value depends on what someone else will give in exchange for it, making it a speculative investment. Gold prices often increase during times of fear and instability as investors purchase it when they perceive currency or economic problems to be imminent.

Physical gold investing incurs storage and capital gains taxes, does not produce passive income through dividends and interest like stocks or bonds do, leading to performance lag in your portfolio over time.

Attracting diversification through physical gold investment may help offset its dependency on financial markets; however, investors should limit how much of their portfolio they dedicate to physical gold investments. Most experts suggest investing no more than 5-15% in physical gold, leaving room for investments that provide passive income or growth and thus helping you to build long-term wealth. To learn more about investing in gold request a free investor kit today.

2. It’s not a hedge against inflation

Gold has long been touted as an effective protection against inflation, yet its track record in this role remains mixed. While its value often increases during times of economic instability, it does not offer as much protection from rising prices than stocks or bonds do.

Gold should always be treated as an investment with no guarantee of dividends or interest payments; no matter whether it’s physical bullion or ETF.

If you want to protect yourself against inflation, stocks or other asset classes that provide consistent, reliable returns may be more suitable than gold as a hedge against it. Though gold may make sense as part of your portfolio in certain cases, using it as a complement rather than replacement should help ensure you build equity in your home, mutual fund growth or generate steady income through an IRA account.

3. It’s not a long-term investment

Gold may be an attractive investment option, but it doesn’t generate passive income or interest for investors. Therefore, they should take caution not to oversaturate their portfolio with yellow metal investments like coins. As an overall rule of thumb it’s recommended that only 5-15% of your portfolio should contain hard assets like gold.

Gold can be an unpredictable asset to invest in over time, especially over shorter timeframes. Its price can fluctuate drastically based on economic data, geopolitical events and investor sentiment changes; such volatility might not align well with everyone’s risk tolerance.

As well as increasing storage costs and capital gains taxes for your portfolio, buying gold also requires additional expertise due to complex financial instruments like futures contracts that may be outside the expertise of novice investors. Gold can lag behind other asset classes when it comes to growth potential compared to stocks; this may compromise your overall investment portfolio in the long run.

4. It’s not a safe haven

Gold investing is not an effective hedge against potential recession, as its precious metal does not produce income and any storage fees may eat into returns.

Dennehy believes gold hasn’t proven effective as an inflation hedge; rather it tends to lose value as prices increase. He advises considering investing in cyclical assets such as energy or banking that perform well during inflationary times such as real estate and silver bullion.

Gold may not be suitable for most investors; therefore, diversify and set clear goals and stick to your plan in order to increase wealth over the long-term. Ideally, keeping 2-10 percent of investments in cash may help protect against impulsive buying and selling that could undermine long-term investment goals.

Raymond Banks Administrator
Raymond Banks is a published author in the commodity world. He has written extensively about gold and silver investments, and his work has been featured in some of the most respected financial journals in the industry. Raymond\\\'s expertise in the commodities market is highly sought-after, and he regularly delivers presentations on behalf of various investment firms. He is also a regular guest on financial news programmes, where he offers his expert insights into the latest commodity trends.

Categorised in: