The market is in a constant state of flux. Vaccines and the looming end of the pandemic start to appear on the horizon, the markets appear to be looking up and definitely on the road to rebounding.
Even before the pandemic, the market could be volatile at times. While the current market may favor equities over bonds, stocks and bonds are still worth at least looking at once in a while. Another investment option is gold. This can come in various different forms (more on that later), but there are a few things you should know about gold before choosing to invest in the precious metal.
Here is a quick look at some of the important aspects of gold investment:
They’re Measured Using a Different Scale
Gold bars and bullion are measured under a different scale than that to which most of us are accustomed. This unique metric is known as the Troy scale. In Troy scale measurements, an ounce of gold is about 30.103 grams. It is distinct from gold purity, which gets measured as karats. Pure gold is fairly soft and gets mixed with other metals to make jewelry.
The gold in which you’ll likely invest will be 99.95%, 99.9%, or 99.99% pure gold. These numbers may be written as 999 or .9999 and represent purity values for the gold itself.
It Has Different Pricing Structures and is Open to Everyone
As with many other investments, gold features different values and pricing structures. For instance, higher purity gold has a bigger premium than less pure gold. Because it varies in value as the market changes, the costs associated with purchasing gold will likely be in a state of flux. Investing in gold isn’t limited to the super-rich or the 1%.
Anyone can invest, whether it’s through $150 Canadian 1/10 oz. Gold Coins, smaller bars of gold bullion, or larger gold bars. Some investors might even consider investing in silver first, then selling some of that silver in order to re-invest their money in larger amounts of gold.
There Are Different Ways to Buy and Sell
There are several methods of investing in gold, but four of them are prominent in the current market. The first and foremost is to buy the precious metal itself. Purchasing gold bullion or a one troy oz gold bar is one of the safest—and easiest ways to invest in gold. They’re one of the smallest denominations of gold bullion available and are the ideal place to start investing in physical gold. These bars can easily be bought and sold are should be guaranteed by the mint selling them.
Savvy investors can also buy gold funds, which are ideal for investors seeking liquid and lower-cost entry into the market. These are mutual funds and exchange-traded funds (ETFs) that essentially replicate the way the commodity moves in the market. Some gold ETFs are traded on the New York Stock Exchange, being bought and sold throughout the trading day. One share is approximately 1/10 of an ounce of gold. So, plan accordingly when you’re investing. One caveat here is that gold stocks tend to rise or plummet much more rapidly than the price of gold, so it can be risky.
A third option is purchasing gold futures. Gold futures are a representation of the right to buy or sell a gold asset at a certain price point, for a pre-determined time frame. Gold futures provide excellent opportunities to have a bit more control, but they come at enhanced risk and a premium cost.
Finally, there are gold mining stocks. For a simple analogy, think of it as investing in the mines that produce the gold themselves. The con with these is that gold bullion prices don’t always move in sync with the mining stocks, because every company operates differently by different metrics of success. So be sure to research all your options and invest carefully.
It Can Be Worthwhile Investment
At the end of the day, gold has the potential to be an incredibly worthwhile investment. There are so many great reasons to invest in gold. Chief among them is gold’s value as an inflation hedge because its price tends to rise as living costs rise. In times of historic inflation, gold prices go the opposite direction as the stock market plummets.
When a currency loses value, gold can end up being a decent hedge against the consequences of that. It’s also mostly immune to deflation (where prices decrease and the economy is in severe debt). It also offers some protection against uncertainty when the world goes crazy and crises occur around the globe.
There’s also an increasing demand for metal, largely due to its ability to help diversify one’s portfolio. And while prices can be volatile, gold typically maintains its value in the long run. Of course, it goes without saying that you should always check with your financial advisor first and understand what you’re getting into before jumping into the deep end of any investing including gold.
You Should Be Wary of Counterfeits
One thing to be on the lookout for when researching gold investments is counterfeit or fake gold. Counterfeit gold can be a real problem when you’re trying to invest and diversify your portfolio. Fake gold bars are relatively easy to spot. They’re basically blocks of cheaper metal that are plated with gold.
Counterfeits can be a bit tougher to notice. These will be real gold, with fake brand markings. It’s essentially a forgery, intended to get around global protection measures. This counterfeit gold is basically pirated and should be avoided at all costs.
There’s a recent case of counterfeit gold bars that have been circulating since 2017. It’s probably not something that will come up often, but always be wary and ensure that any physical gold is stamped with the markings of a reputable mint prior to purchasing.
Interesting related article: “What is an investment?”