With stock markets seeing unheard of levels of volatility in 2020, many investors looked to alternative investments to protect their wealth. And while markets have recovered towards the end of the year, growing economic weakness and uncertainty about the future of the economy have many investors on edge.
Against that backdrop, gold has once again pushed to the fore as a primary safe haven for those looking to protect their savings and investments. Its performance in 2020 far surpassed that of stock markets, and there’s every chance it may repeat or even better that performance in 2021. But for many investors new to precious metals, they may have questions about how to invest in gold.
There are numerous options out there when it comes to investing in gold, each with advantages or disadvantages depending on your stage in life, investment goals, etc. But for a great number of investors the advantages of an investment in physical gold make it the ideal choice when it comes to precious metals investing.
Types of Gold Investments
Let’s first look at the most common types of gold investment.
1. Exchange-Traded Funds (ETFs)
Exchange-traded funds are an increasingly popular means of investing in gold. Investors purchase shares in a fund that owns gold, and those shares are often traded on mainstream financial exchanges and can be purchased through many brokerages. It’s a way for investors to gain exposure to gold without actually owning any gold. And that’s one of its disadvantages too.
Even if you want to take physical possession of gold, you can’t do it if you’re invested in an ETF. You don’t actually own gold, just shares in a fund that holds gold. It isn’t as though every dollar in an ETF equates to one dollar in gold either, and because of the various custodial and subcustodial arrangements that ETFs engage in, where the ETF’s gold is and who actually holds or owns it is anyone’s guess.
Because ETFs are also shares traded on exchanges, investing in a gold ETF will expose you to fees that you won’t necessarily face with other forms of investing in gold, which can cut into your investment returns. While ETFs may be intriguing to someone looking for a little exposure to gold, if you’re looking to make gold a core part of your investment portfolio, you may want to consider other options.
2. Gold Mining Stocks
Gold mining stocks are shares of stock in publicly traded companies that mine gold. The thinking of people who invest in gold mining stocks is that when the gold price rises, the performance of gold mining stocks should rise too due to increased income.
While that could be the case, mining is also subject to labor disruptions, power outages, and increases in energy prices. Mining is energy and resource intensive, and just because the price of gold is going up doesn’t mean that the price of mining remains constant. So even with a rising gold price, mining companies and their stock prices may not perform as well as gold is.
3. Gold Jewelry
In the West, gold jewelry is mostly seen as a form of ostentation. It comes out for fancy balls and soirees, weddings, or other formal occasions. But in the East, especially in India and China, gold jewelry is a primary form of investment.
The Indian wedding season, in particular, is a big driver of gold demand. Each year as Indians get married, they receive gifts of gold jewelry from family members. And that gold jewelry forms an important part of their family wealth. Don’t underestimate the impact that that jewelry demand has on the gold price.
Gold jewelry will likely never catch on in the US as a form of investment. For one thing, it lacks the purity needed to be held in investment vehicles like a gold IRA. Then there’s the difficulty in telling apart solid gold from gold-plated jewelry. Reading fineness marks can be an art in itself too. And because anyone likely to buy gold jewelry from you may not be familiar with the type of jewelry you’re selling, you’re not likely to get anywhere close to the metal value of gold for your jewelry.
4. Gold Coins and Bars
That’s why gold coins and gold bars were created, to provide a means for those engaging in trade with gold a uniform, recognizable, and easily assessed form of gold. When you hold a gold coin in your hand, you know instantly from its design or its markings what type of coin it is, how much it should weigh, what its fineness is, and what its metal content is.
Those characteristics are why physical gold coins and bars have become the investment of choice for millions of retail investors who want to benefit from investing in precious metals. Their universal recognizability gives them wide appeal to those looking to buy gold. And with hundreds of potential choices, there’s a gold coin or bar out there for everyone.
The Advantages of Investing in Physical Gold
Investing in physical gold coins or gold bars versus “paper gold” such as ETFs and mining stocks, or gold jewelry, has several advantages. Here are three of the most important ones.
1. Tangible Assets
Investing in physical gold means that you own tangible assets that you can touch, feel, and control. Whether you keep a handful of coins in your dresser at home, or keep tens of thousands of dollars of gold from your gold IRA stored in a precious metals depository, your gold is yours to control.
If you want to take physical delivery of your gold holdings from your gold IRA through an IRA distribution, you can do so, subject to any applicable taxes and regulations. Then you’ll have physical coins or bars, not an ephemeral share of ownership in a company recorded in an electronic ledger, or a promise from a corporation to pay you at some point in the future.
That tangible nature of physical ownership holds great appeal for a great many investors, which is why purchases of physical gold coins and bars remain so popular.
2. Minimal Counterparty Risk
As you approach retirement, conventional financial advice often recommends that you increase the percentage of your assets held in bonds, as they are considered safer investments than stocks. But bonds come with counterparty risk, meaning that the bond issuer can default on the bond. If that happens, you’re out of luck and out of money that should have been coming to you.
With an economy hampered by COVID lockdowns and in which corporate debt has increased over 50% since the 2008 financial crisis, there’s more and more debt out there and the quality is dropping. The risk of a major bond default wave grows every day. So why subject yourself to that risk?
Owning physical gold minimizes or eliminates your counterparty risk. If you maintain physical possession of gold, there’s no other party you have to deal with. And if you store gold with a bullion depository as you would when investing through a gold IRA, you know that your gold isn’t being loaned out or hypothecated. You can take a distribution from your gold IRA and know that your gold will get to you.
Investing in gold doesn’t require the ability to read a balance sheet, calculate EBITDA, or compare current ratios of dozens of companies. It’s as simple as looking up the gold price and its trends and deciding whether you want to buy gold.
You don’t need any specialized training, knowledge, or equipment to buy gold coins. And if you’re worried about buying counterfeit coins, you can minimize or eliminate that risk by dealing with trusted companies that have established relationships with major world mints.
Protect Your Retirement With Gold
If you have retirement savings that you’ve been building up for years, and you’re thinking about investing in gold, why not put your plans into action? Gold has seen phenomenal growth in 2020, and 2021 could end up being just as good. As bad as all the uncertainty in the economy has been this year, that has provided a great opportunity for gold to grow. Give the experts at Goldco a call today to find out how gold can help protect your investment portfolio and help you achieve your retirement goals.