Gold has been a valued and cherished investment asset for centuries. It has helped millions of investors protect their assets over the years, as it provides an unparalleled ability to maintain its value in the face of economic turmoil and financial crisis. Investing in gold can be one of the best financial decisions an investor makes, as long as that investor knows what to look for when investing in gold.
Investing in gold isn’t something that should be done on the spur of the moment, as it’s an important financial decision that can have lasting ramifications on the future value of your investment portfolio. It requires a well thought out plan of attack so that you can maximize the benefits of your gold investment. Make sure that you do your homework and read as much as you can before you decide to invest in gold.
The Value of Gold
Gold has served as a monetary metal for millennia, but it first came to prominence during the era of the modern gold standard. The beginning of the 19th century saw gold take an increasingly prominent role in international finance as the Industrial Revolution and increased trade growth within the British Empire brought its gold standard into contact with numerous countries around the world.
By the early 1870s most major nations had adopted the gold standard, either de jure or de facto. The age of the classical gold standard that existed from then on until 1914 was a golden age that hasn’t been seen since. During this time, industrial production skyrocketed, living standards increased, and prices of consumer goods fell every year as production became more and more efficient.
The classical gold standard meant that each national currency was defined as a certain unit of gold. The British pound was defined as 113 grains of pure gold, the French franc was 4.48 grains of gold, and the US dollar was defined as 23.22 grains of pure gold. Thus if you knew what weight of gold you had, you knew how much money it would be considered in each country around the world. In many countries this was still the era of free coinage, in which any individual could take gold to a mint and have it minted into coins.
Eventually, paper certificates began to be used in place of gold coins, as they were easier to transport. Each certificate stated that a corresponding amount of gold was deposited in a bank, and the holder of the certificate could redeem the certificate for gold. Those paper certificates began to circulate as money and were eventually considered almost as good as gold.
From then on, the history of money throughout the world follows examples we’ve seen time and again throughout history. Governments printed more paper money without gold backing, suspending the gold standard in particular during times of war. Then with more paper money circulating than gold to back it, governments permanently suspended the gold standard so that they could issue more paper money.
In the United States, the government seized all privately-owned gold in 1933, then devalued the dollar to 14.144 grains of pure gold in 1934. It continued to allow foreign governments to redeem their dollar holdings for gold until by the late 1960s it looked as though the Treasury would eventually run out of gold. President Nixon closed the gold window in 1971, and since that time the gold price has freely fluctuated on world markets.
No longer are governments trying to define their currencies as a weight of gold or fix the price of gold by intervening in world markets. Gold moves up and down as supply and demand fluctuate over time.
Why Invest in Gold
There are numerous reasons people invest in gold. Sometimes they just want to buy a handful of coins to save for a rainy day. Others may make gold a large and vital part of their investment portfolio. Here are a few of the reasons investors may choose to invest in gold.
1. Diversify Portfolio
The best performing investment portfolios are those which make both great gains during a strong economy and minimize losses during a weak economy. A truly diverse portfolio does that by investing in several different financial assets across all of the different asset classes. A diverse investment portfolio means that you’re not just investing in a wide variety of stocks and bonds, but you’re also investing in gold, commodities, foreign stocks, real estate, etc.
By investing across several assets and asset classes, you’re limiting your exposure to a downturn in a single market. You’re also limiting your overall exposure to financial markets, which can tank most investors’ portfolios.
2. Supply and Demand
Gold’s price is largely driven by supply and demand. Since gold’s supply only increases very slowly, while demand can grow explosively, the long-term trend for the gold price is upward. Investing in gold can be a very good idea for those looking to take advantage of that long-term potential for great investment returns.
3. Protection Against Inflation
Inflation wasn’t always a given, but in the modern world with its money-printing central banks, inflation is just as sure as death and taxes. Investing in gold can help protect investors against inflation because gold always maintains its value in the face of inflation. In fact, the weaker the dollar gets, the stronger gold’s price growth is.
Why Avoid Gold Investments
Given all the great reasons for investing in gold, why would someone not want to invest in gold? Well, there are a few reasons.
For someone who’s deeply in debt and working to pay off that debt, gold isn’t a great investment. But of course, there aren’t many great investments for someone in that situation. It’s more important to pay off debt and get yourself free and clear before you start putting your money into investments. Debt, especially if it’s at a high interest rate like credit card debt, can put you in a hole faster than investing in gold can dig you out.
Then there are those investors who are already heavily invested in gold. If you’ve already been investing in gold and are pushing up to 50% or more of your portfolio in gold, you need to take a step back. Yes, gold is a great investment, but putting too much money into gold means that you’re not diversifying your investments.
How to Invest in Gold
There are numerous ways of investing in gold, each with advantages and disadvantages. One of the easiest is just going down to a local coin shop and buying a gold coin. The advantage is that it’s quick and easy, but the disadvantage is that you’ll likely pay more than you would elsewhere.
You could also buy gold coins off the internet. The major disadvantage is that, unless you purchase from a reputable outlet that checks its coins for authenticity, you could end up purchasing counterfeit coins and lose your money. Many an unsuspecting investor or collector has been burned purchasing gold coins on eBay.
Gold ETFs are another method of investing in gold that is gaining in popularity. They have the advantage that investors can purchase shares in a fund that holds gold, making them easily purchasable through normal brokerage accounts. The disadvantage is that you don’t physically own gold, just shares. If the fund issues more shares than it has gold to back it, the share price may end being inflated over what it should be.
Finally, there is a gold IRA, which allows you to roll over existing retirement savings into a gold investment. It’s one of the easiest ways to invest in gold, and you own physical gold too. You can even take physical possession of your gold when you decide to take a distribution.
Ultimately the best method for investing in gold for you is the one with which you’re most comfortable. Do your homework, read gold investing and gold IRA reviews, and consult with trusted financial advisers before making your decision.
Your Next Step for Investing in Gold
At Goldco, we’re confident that once you learn about all the many advantages of investing in gold, you’ll want to make gold a vital piece of your investment portfolio. We’ve been helping investors just like you invest in gold for years, and we have numerous success stories to show for it.
Let us help you navigate the world of precious metals investing and learn more about the many advantages of investing in gold. Contact Goldco today to find out how you can put gold to work for you in securing your retirement savings.