In times of market uncertainty, there are those that suggest an investment in gold is the answer. While not a common strategy among mum and dad investors, gold is gaining popularity as an investment asset and investment options are growing.
Money and gold have had a synonymous relationship for thousands of years. According to the World Gold Council, “Gold coins were first struck on the order of King Croesus of Lydia (an area that is now part of Turkey) around 550 BC”.
Since that time, it was used across the globe as currency, before the introduction of paper money. Time will tell on whether we follow a similar path with the myriad of cryptocurrencies emerging worldwide – but that’s a different article altogether.
Let’s take a look at the pros and cons of a gold investment and some of the ways you might invest.
Why invest in gold?
- As financial planners, we like diversification. Diversification provides investors with a more stable experience, as assets within a given portfolio perform differently in varying market conditions. Adding a gold investment to your portfolio adds an additional element of diversification that can offset losses or poor performance from other assets held.
- For those who like to keep their wealth close (think brown paper envelope with cash under the mattress), gold allows you to store a portion of your wealth at home while gaining the potential for an increase in value. This differs from having cash, where you’re effectively losing money due to inflation.
- Investment returns. Investment performance features on both the pro and con list. Gold doesn’t increase in value like shares can, but it doesn’t decrease either, at least not substantially. If you’d bought an ounce of gold on the 1st of July 2018, you’d have paid $1,695. It would be valued at $2,079 (31 July 2019). That’s a return of slightly over 18%. If you held the same amount in a high interest savings account paying 2% over the same period, you’d now have a little over $1,730.
- Investment returns. Storing gold bars in your home doesn’t produce income. This puts pressure on gold as an investment to appreciate in value.
- Unlike other assets it can be difficult to value (when you buy and hold physical gold). The spot price is readily available but until you actually sell your gold bar you won’t know the exact value.
- Traditionally, investors buy gold in times when markets aren’t performing. If markets do perform the investment you have in gold could have been invested in shares, property or fixed interest.
- As much as 78% of gold unearthed today is used for making jewellery. It’s never happened before, but if gold goes out of fashion how does this impact value and how long does it last?
How can I invest in gold?
- You can purchase gold from a bullion dealer in person or online. Some dealers will also arrange storage at a secure site. It goes without saying that if you’re considering this option you should only purchase gold from a reputable business.
- You can purchase an exchange traded fund that seeks to track the price of physical gold.
- You can purchase shares in gold mining business via the ASX or overseas markets.
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