Does It Still Pay to Invest in Gold?

Gold was one of the earliest traded assets long before other markets like stocks and bonds. While gold trading offers many opportunities for investors, it is not without its downsides. 

In this article, I will explore why people invest in gold, how to invest in gold, and whether gold is a good investment.

Gold Investment History

Gold has gained a reputation as having a negative correlation with stocks and a positive correlation with inflation since the stock market began. Gold, however, has a long history as a financial asset and store of value.

should you invest in gold

Gold coins were minted and used as currency as far back as 550BC, but gold was known as a symbol of wealth long before its use as a currency.

There have been gold-bearing treasures discovered as early as 4000BC, so the precious metal has been linked to power and wealth for many millennia.

Gold did not gain its current value in finance until the late 1800s. Gold standard: a system of setting the value of a currency based on the price of gold. 

In the years since, the gold standard has been dropped and re-adopted in many countries until it was finally replaced by free floating fiat currencies in 1971.

In the following years, gold prices rose from £15 a gram to £30 a gram as a result of the 2008 financial crisis. Prices spiked due to central banks’ adoption of quantitative easing (QE). 

Gold’s rise in value is justified by the general logic that Quantitative Easing generates inflation, and gold prices rise along with inflation.

Benefits of Investing in Gold

Wealth preservation

Many investors trust gold for its wealth preservation qualities. Owning a £50 note in 1980 is similar to owning £50 worth of gold. Gold’s value has since gone up, so the original £50 investment is now worth much more than gold. Inflation, however, has made the £50 note worth less than it would have in 1980 due to declining value.

Hedging

Gold prices often rise with rising inflation rates and a depreciating dollar. When investors realize they are losing money, they may consider buying gold as a hedge. 

Following the general logic described above, gold often maintains or even increases its value when the value of the dollar declines.

Safe haven

Unlike currencies, gold is not directly impacted by interest rate decisions and cannot be printed to control its supply and demand. Gold is a scarce asset that has maintained its value over time and has proven its worth to act as an insurance policy during adverse economic events. Because of this, gold is considered a safe haven by many investors.

Portfolio diversification

Diversification assets like gold are often included in a balanced portfolio since they are generally negatively correlated with the stock market. Diversifying an investment portfolio helps investors reduce risk and volatility.

There are gold stock opportunities. Prices of gold stocks are often influenced by the price changes of the precious metal. 

Even when gold prices are low, gold stocks can maintain their profitability. Gold mining companies also pay strong dividends, which can serve as an additional incentive for investors to buy gold stocks instead of gold.

Gold investment products

With gold, you can gain exposure more easily than with other commodities. With many investment products available, investors can invest in gold. 

Also, it is less volatile than certain commodities, such as oil trading or trading agricultural products, which can be affected by seasonal events or economic instability.

Physical gold and gold bullion

Gold is a popular investment product for investors of all types. It can appear as gold bars, ingots, coins or as the physical metal itself in a refined form suitable for trading. These can usually be purchased from a precious metals dealer, bank, or brokerage over the internet or in person.

Gold jewellery as well as other gold products are available for purchase by investors along with gold bullion. The labour involved and retail pricing of gold jewellery generally cause the price to be marked up.

Gold cannot be stored as easily as other financial assets. This takes up a lot of space and poses an additional risk of loss or theft. Whenever you buy and store physical gold, you should always make sure that it is insured in case of loss or theft.

A company Regal Assets is a reputation for helping people to invest in physical gold. You can read the Regal Assets review here.

Gold mining companies

There is also the option of buying gold mining shares, which are known to be more risky than physical gold. This is because you have to consider a business’s success separately from the price of gold. 

Furthermore, mining companies are typically speculative investments, so you have the opportunity to make, or lose a lot of money. 

You do not own the gold physically, however, if the gold stocks do not perform well.

Gold ETFs

In addition to the costs associated with owning physical gold, gold mining companies can be a speculative investment. 

Gold ETFs have proven to be a popular way to gain exposure to gold, without storing it.

Gold is a commodity that many exchange-traded funds track, so many ETFs offer exposure to the gold market. 

In addition, ETFs can be considered a less-costly and more liquid investment option.

Gold derivatives

Any product whose price is based on the value of gold is considered a gold derivative. The term can refer to gold options and futures, which are recommended for advanced traders. 

You can trade on the value of gold via derivative products, such as spread betting or CFD trading. You can compare the two types of gold-trading accounts to get an idea of how they differ.

Also available is a Gold share basket consisting of the top 15 stocks within the gold mining industry in the United States. Barrick, Franco-Nevada, and Newmont are included. 

You can diversify your portfolio with basket trading, and the risk of one underperforming stock can be hedged by another within the collection.

Using a gold derivative is more effective for short-term trading than long-term investing because you don’t own gold. The cost can be cheaper in the short-term, but can add up over time.

To start trading commodities such as gold and other precious metals, you can open a trading account.  

Current Investment Outlook For Gold

Gold is a good investment asset as part of a balanced portfolio. Among the commodity markets, gold is one of the most liquid and has more often than not appreciated in value over time.

Gold has increased by more than 500% since you invested £1,000 in it 30 years ago. In other words, your original investment could have been worth over $5,000. We do know, however, that past performance is not a prediction of future performance in financial markets performance – although, an asset that has shown strong performance over many years could be preferred to one that hasn’t performed so well.

In the aftermath of the stock market crash, gold hit new highs not seen since 2012, with many analysts predicting further gains. 

It is likely that investors have reallocated their wealth into gold due to its reputation as a ‘safe haven’ and a hedge against stock markets and financial uncertainty.

Final Verdict: Should You Invest in Gold?

Gold is attractive to investors for a variety of reasons. As a safe haven, hedging asset, or to diversify their portfolios, investors choose gold. 

As an investment asset, gold can be used for several reasons and is usually chosen for a mix of them.

Gold can be invested in many ways. However, there is no ‘best’ method as the tool you should choose depends on your individual circumstances and investment objectives.

In the right circumstances, gold can be a good investment. Understanding when to choose an asset is key to successful investing. 

Therefore, gold can be an excellent investment, but it is highly dependent on your own circumstances and the asset’s suitability for your portfolio.

There are risks associated with gold. Investing in and trading gold entails the risk of losing capital. You should only invest in, or trade gold if you are aware of the risks involved. 

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