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Gold has been the world's preferred currency for centuries and the modern world is no different. Most investors purchase gold to hedge themselves against inflation and political turbulence. As such, gold is mostly purchased as a result of fear of future economic hardship.
We will cover tips on how to choose the best company to invest in gold, the different forms of gold investment, and the factors that determine the price of gold. Keep reading to find out more about this venture and whether it is right for you or not.
In this article
Tips on How to Choose a Gold Investment Company
• Establish how much of a company's investment portfolio is in physical gold and other commodities. Once you know what percentage of gold a company has, you can decide if it's a befitting investment for your standards.
• Assess the company's performance history both recently and long-term. This will help you calculate an average and determine if it's profitable enough for you.
• The fund's manager in an actively managed gold company makes all the essential investment decisions. It would be best to assess their level of education, performance, and experience.
• Gold investment companies have varying fees and costs based on several factors. Do a bit of research to determine the companies that charge reasonable fees.
• Companies that receive any form of compensation if you invest in them are riskier than those that don't. This compensation creates a conflict of interest which is certainly not in your favor.
• Ensure that the company you are investing in is licensed and registered as per the country's guidelines.
• Conduct due diligence on the gold investment company and find out as much information as possible. Goldco is an excellent gold investment company for you beginner investors looking to invest safely and at a reasonable fee.
Ways to Invest in Gold
So, you have established that you want to purchase gold for your holdings, but how do you go about it? Here are the different forms in which gold can be invested.
1. Gold Bullion
Bullion is basically physical gold in any form. It includes bars and coins of pure and almost pure gold that is certified for its purity and weight. Bullion usually has an attached serial number for security reasons.
Large gold bars cannot be sold quickly without a significant loss in value despite their attractive nature. That is why it is advisable to inquire about the melt value so that you anticipate the changes in value.
Most gold owners go for smaller sized bullion in the form of coins and smaller bars. They are more liquid and less hectic to buy and sell.
2. Gold Coins
Investors commonly purchase gold coins at premiums of between 1 and 5% from private dealers. However, the premiums spiked to 10% in early 2019. Gold coins are easier to deal with because of the following reasons:
1) You can easily find their current prices on financial publications globally
2) They are minted in small coins of less than an ounce, making them a convenient investment
3) It is easy to find reputable private dealers around the world
It is essential to note that although rare coins are a beautiful sight, they are bad for investment. They come with high premiums due to their scarcity. It would be best to invest instead in widely used coins. These include the Canadian maple leaf, U.S. eagle, and the South African Krugerrand.
Bullion investment is no mean feat. You must consider the cost of insurance, storage, and the exorbitant markups from gold dealers. Buying gold, however, is a foreign direct investment (FDI) in the value of gold. As such, the value of your holdings changes with the dollar’s value in the price of the metal. You may want to consider investing in mutual funds as well. Investments are made in relatively smaller amounts compared to bullion. They are also less risky in terms of exposure to prices.
3. Gold ETFs
ETFs are Exchange-Traded Funds. Shares in ETFs represent a specific gold amount such as an eighth of an ounce. They are bought and sold in IRA accounts and brokerages, just like regular stocks.
It is a convenient and cost-effective way to invest in gold rather than directly buying coins and bars. ETFs enjoy attractive annual expense rates of 0.65% or thereabouts. This is less than most forms of gold investment out there.
4. Mutual Funds
Mutual funds make investments in bullion and gold companies. Most of them, however, venture into other commodities as well. Choosing a mutual fund that solely invests in gold is beneficial for the following reasons:
1) Low minimum investment and costs
2) Risk management through diversified holdings
3) Easy to buy and sell in IRA and brokerage accounts
4) No need to research individual firms
ETFs have lower expense rates. They are invested in a passive index-tracking approach, unlike mutual funds that are actively managed. ETFs and mutual funds are the easiest and most secure way for average investors to invest in this precious commodity.
Determining if You are Getting the Best Gold Price
• Go with bullion coins instead of collectibles. The latter have higher premiums because of their scarce nature.
• Compare dealers both online and in brick-and-mortar shops. Online gold dealers tend to have lower premiums and more elaborate inventories. Check out different prices and shipping fees to choose the best deal.
• Buying gold in bulk usually carries lower prices per ounce compared to small amounts.
Why Gold is a Good Investment
• It is an excellent commodity to diversify your investment portfolio and protect you against financial risk.
• The demand for gold has been on the rise globally.
• There is hardly enough supply of the commodity, making its price to increase.
• Gold usually enjoys higher returns in economic and political uncertainty compared to other investments.
• It is the perfect hedge against inflation because gold prices increase with the cost of living.
Why Gold is a Bad Investment
• No interest
• No dividend
• Appreciation overtime is not guaranteed.
• May not hedge you from the most severe inflation crisis.
What Determines Gold Prices
1) Value of the US Dollar
The dollar denominates the price of this precious metal. A strong US dollar grounds gold prices while weaker dollar values raise the price of the commodity.
2) Gold Production
Gold mining is rife with hazards and environmental constraints that make it harder to come by. As such, it costs more to get very little gold.
Most of gold’s demand comes from ETFs that hold and sell shares in mining stocks for investors to trade in. an increase in demand raises its value significantly. A rise in industrial and jewelry demand is impossible to meet with unlimited supply, causing the cost of gold to spike as well.
4) Central Bank Reserves
The price of this metal rises as the Central Bank accumulates more gold.
Gold investment is an attractive venture. However, it is easy to fall prey to the numerous scams in the market without the right information. As such, it is essential to utilize online resources that show the best companies to make investments. They also review those companies based on their pros and cons. This way, you can make an informed decision and make the most out of your investment.