Why Do People Invest in Gold?
Gold has always been a distinguished metal known for its value since the ancient times. It was used as a form of currency more than a thousand years ago. It was the practical choice to use for trading since it doesn’t tarnish as quickly as other metals. Until today, ownership of gold in its physical form is viewed as a sign of wealth, similar to how diamonds and other precious stones are valued in the market.
Gold is still crowned as one of the most precious metals on the planet and the demand for it continues to rise. Aside from being used in jewelry and ornamentals, gold is highly-valued in the electronics industry for its physical and chemical characteristics. Physical forms of gold and gold stocks are also freely traded in markets across the globe which makes you think if it’s a good idea to invest in them.
Gold’s appreciating value, rarity, and universal recognition as a tradable metal make it a worthwhile investment option for many individuals and countries alike. In fact, it acts as some sort of unifying currency used by international organizations to gauge the wealth of a nation.
Based on the findings of Statista, the United States holds the largest gold reserve in the world with over 8,133.5 metric tons. Countries like Russia and China have also been amassing gold for the past years to increase their reserves. Russia, in 2015 alone, has increased its reserves by more than 200 tons. Australia, on the other hand, is quite far from the others in the list. The country holds only around 80 metric tons of gold as of September 2017.
Gold also serves as protection against inflation which is why individuals invest in gold mining stocks and in buying ounces of the metal itself. Notorious investor George Soros, banking magnate Lord Jacob Rothschild, and hedge fund manager Stanley Druckenmiller are all in favor of investing in gold. They believe another economic crisis is looming and gold can be the best bet in these trying times.
According to a report from Rothschild, the following events could affect the global market in the upcoming years:
- Market getting less liquid in relation to quantitative easing
- Continuous tensions in the Middle East
- Immigration crisis and economic turmoil in some members of the European Union
- Provocation of North Korea against its neighboring countries
These factors seem to be already affecting economies worldwide which is why people now have their eyes again on gold. Barrick Gold, the largest gold miner in the world, was able to ride this new appreciation of gold, experiencing over 250% rise in its stock price from 2015 to 2016. From $7.38 per share, its price rose to as much as $20 even when the price of gold rose only by 20%.
People who can afford ounces of gold coins or bars are stashing them in preparation for an economic crisis. However, others prefer to take advantage of rising gold prices by buying the stocks of listed gold miners.
In Australia, listed mining company Blackham Resources (ASX: BLK), poured their first ounces of gold as a milestone for their 5.1 million oz. Matilda project. The company’s stock price rose over 200% prior to the disclosure, making many investors richer just after a few months. Blackham is planning to increase production to 230,000 oz. per year which may be the signal for you to buy the company’s shares before prices soar to a new high.
Pros and Cons of Investing in Gold
It’s enticing to invest in gold after reading about its price movement and how world-renowned investors are stockpiling the metal. However, it’s best to know the advantages and disadvantages in any investment to determine if it’s the appropriate choice for your strategy.
1) Safety measure against uncertainty
All countries recognize the value of gold. When all else fails, countries may turn to gold for trade just like we did centuries ago.
2) Investment diversification
The saying ‘don’t put all your eggs in one basket’ perfectly explains why people invest in gold. Diversifying your portfolio can save you from getting your hard-earned money wiped out in situations like wars, economic depressions, and market crashes.
3) Protection from currency devaluation
When everything becomes chaotic, devaluation of currencies may occur, and gold may be the only thing acceptable in the market.
4) Limited supply
Finding gold deposits is getting harder and harder, limiting the worldwide supply of the precious metal. From what we learned in economics 101, limited supply pushes prices upwards while surplus drives prices down. There may have been dips in the price of gold but looking at a longer timeframe, it’s in an uptrend. Once supply gets depleted, the metal’s price will surely soar into outer space.
5) Complete privacy
Unlike property or stock investments, you don’t have to register your ownership of gold coins. This means you also don’t need to pay mortgages or related fees for physically owning gold. Other than your dealer, no one will know how many ounces of gold you have in your pocket.
1) No profit
There’s no profit or any sort of regular income you should expect from holding gold in its physical form. However, trading gold stocks in the market can earn you dividends.
2) Storage problems
Storing gold coins can be a problem. Unless you’re letting sellers like Perth Mint store the gold for you, you have to think about where to safely put it inside your house. You also have to think about the security details of your storage device and whether to insure the gold coin itself for added safety measures.
3) Uncertainty of price movement
Similar to stocks, the value of gold is subject to volatility. No one knows how long it’ll take for your investment to be profitable. You’re literally stuck at holding your gold coin for an indefinite amount of time.
Based on the graph from Gold Price regarding the metal’s price movement, it took quite some time before the price of gold really took off. If you bought an ounce of gold back in 2000, it would have taken more than 10 years to double the amount you’ve invested, underperforming more liquid assets available in the market.
Liquidity can be an advantage and also a disadvantage, depending on what form of gold investment you’re into. Take note that stocks are more liquid and are readily tradable compared to gold coins.
Where to Buy Gold
There are a number of legitimate and accredited dealers of gold and other precious metals around Australia. Here are some of the most reliable ones you can look into:
- Perth Mint
Perth Mint has been in the metal trading enterprise for over a hundred years already. They distribute around $18 billion worth of silver, gold, and platinum bars and bullions to over a hundred countries around the world every year. They have accreditations from the commodity exchanges below:
- London Bullion Market Association (LBMA)
- Shanghai Gold Exchange (SGE)
- New York Commodity Exchange (COMEX)
- Dubai Multi Commodities Centre (DMCC)
- Tokyo Commodity Exchange (TOCOM)
- ABC Bullion
The company specializes in trading metals and bullions since 1972. They cater to a diverse array of clients including jewelers, retail investors, SMSF trustees, and fund managers. Their cast bars are produced from the only refinery in Australia accredited by the LBMA.
- Gold Bullion Australia
GBA has been in the business for more than 30 years, buying, selling, and storing precious metals for clients in Australia. They also offer investment options in precious metals via SMSF.
Gold has remained valuable throughout centuries and it will continue to be highly regarded as an alternative way to preserve wealth across generations to come. However, committing the majority of your portfolio into gold can be a bad move. Investing in gold is just meant to be a part of your portfolio; a way to diversify your investments into several tradable options. Concentrating on gold alone may limit your profits. Just like in trading any stock, make sure to invest only the amount you’re prepared to lose.